Senior Canadians tapping their home equity is slowing, but still showing massive growth. Office of the Superintendent of Financial Institutions (OSFI) filings show outstanding reverse mortgage credit hit a new high in November. The annual pace of growth of outstanding credit was slower than last year, but still remains above 30%.
Reverse Mortgages
Reverse mortgages are a popular way for seniors to tap their home equity. A senior homeowner can borrow their home equity, and receive it in a lump sum or bulk payment. The loan is similar to a home equity line of credit (HELOC), but with one difference – they don’t have to make payments. Instead, a payment is only typically required in the event of death, sale of the home, or foreclosure.
Sounds great, but think about the demographic of borrower here. Seniors are usually on a fixed income, meaning a big loan isn’t likely to be paid quickly. At that age, they also aren’t likely to find new additional income streams either. That adds up to borrowers that will rack up interest for a very long time. To add salt to this wound, the growth we’re seeing today is at a near all-time low for borrowing rates. As today’s loans age, these households can see their equity vaporize pretty fast.
Canadians Owe Over $3.48 Billion In Reverse Mortgage Debt
The balance of reverse mortgage debt reached a new record high. Filings show $3.48 billion outstanding in November, up 1.85% from the month before. This represents a 31.68% increase when compared to the same month last year. That’s very large growth, but it is tapering.
Canadian Reverse Mortgage Debt
The total of reverse mortgage debt held by regulated finacial instituitions, in Canadian dollars.
Source: Regulatory Filings, Better Dwelling.
Double Digit Growth For Reverse Mortgage Debt
Reverse mortgage credit is a booming category, but growth is uh… less huge than it used to be. The 31.68% annual increase observed in November is down from the month before. It’s also 31% lower than the same month last year. That’s still very large growth, but smaller than it was last year. It’s not great, but it could be worse.
Canadian Reverse Mortgage Debt Change
The annual percent change of reverse mortgage debt held by regulated finacial instituitions.
Source: Regulatory Filings, Better Dwelling.
Reverse mortgage credit growth is decelerating, but is still very high. The segment of credit growth is still one of the largest across Canada. House rich, cash poor Boomers that want to avoid downsizing will probably continue piling into this segment. Piling in at peak housing prices, at the bottom of interest rates – what could go wrong?
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25% of HELOC folks are only paying interest month to month,
https://www.bloomberg.com/news/articles/2019-01-15/a-quarter-of-canada-heloc-users-pay-interest-only-survey-finds
Then there are all the folks paying one debt line from another debt line.
Am I the only person not renovating their ugly kitchen? Feels like that as I look down the street at all the trade vans today. Everyone’s getting their dream basement, kitchen, floors.
Reverse mortgage debt is not actually an equivalent ‘sin’ to other forms of household debt inclusive of conventional or insured mortgages. A reverse mortgage is based purely on a current value of the property and not income; therefore, the risk to the financial institution, as there is little for the homeowner, revolves around the value of the home; in the minimum, retaining its market value over time. In truth, it is difficult to compare a HELOC, based on existing homeowner equity, to a reverse mortgage although a reverse mortgage serves as an alternative or even substitute product for those 55 years of age or older.
LOL … reverse mortgage is by far the most toxic product out there.
Absolutely. My advice to anyone thinking of taking money with reverse mortgage is, just don’t use it. The better way of utilizing the equity of your home is selling the house and moving to a cheaper and smaller house or renting one. Reverse mortgage is toxic and the monthly payout is very limited, so it doesn’t do any good to you. You’d rather get the lump sum of the money from your house and spend it until it is gone.
(exhales from pipe)…yeaahhh booooyy. Make your paper money real money and have an income stream. Shit, move to Manitoba or out east and live like a king/queen. Tock.BD4L.
You know those alleys that have horrible people hanging around a dumpster? Sure you could take the long way but it looks like you decided to take a short cut kenny…oh no, Blue just took a fat hit off the pipe and stabbed you in the eye..here weeee goooo….this is some really subversive bullshit that is cut and paste from the CHIP website or whatever bottom feeding organization (read: RE related) that leeches off of the vulnerable. The fact that you aren’t astute enough to mask the ‘current value’ aspect despite the fact that we’re seeing notable corrections in many major markets suggests to me you’re a number jockey (See Alien 3…I call you all my 85…in all fairness most of you are probably around 90…Frank Leo and Al Sinclair could crack 95, lol, just kidding, maybe their hair could). 55 years or older? Are you fucking kidding me bro? There is no 30 year reverse mortgage that is sustainable and as the underlying asset loses value, many people will max out in under 15. A reverse mortgage should be used only out of desperation and as a last resort. Oh and you know this but for our readers: Reverse mortgages are callable so watch as the underlying asset loses significant value and the bankers come to collect. I could be wrong, I’m stressed to fuck and just smoked crack (yum!) but please, please try to respond with something other than “You’re crazy and a dick and a child” (hint: I know) or just spouting the same marketing material you posted above. Give us an example of where a reverse mortgage lead to any positive outcome other than short-term cashflow relief…there must be some right? Tock.BD4L.
Nice reply. Very well replied. clap clap clap…
Bluetheimpala should be removed from this site. You are a angry envious reader which spills out terrible advice. I’ve been reading your comments for a while and they are all terrible .you should get out of that dark hole or basement your in.. where I’m standing there are a lot of people that can afford there properties and investments.. it sounds like armageddon is coming when you comment..grow up or stay off this site if you dont have advice that can help people avoid a bad decision.. tick tock.. hope you clock breaks..
I have been reading this site almost daily for about 8 months now and I read a lot of the comments. Blue’s comments, while exaggerated (I believe for entertainment purposes – and they are entertaining) are highly intelligent and provide great insight to any conscientious person who is willing to think for themselves and do a little side research of their own.
You would do well to parse through what he has to say and try to gain an understanding of the information he does provide, so stop being so damn sensitive, and gain a sense of humour.
*You’re. Tock.BD4L.
This trend is not encouraging. It suggests a failure in other parts of the financial sector to provide for retirement. Thus, the reforms have to be very far sighted to provide for other seniors 50, 60 maybe 100 years for now.
We cannot allow the myopic greed of developers to steer us into financial policies which will seriously harm seniors in the distant future. The first step would be to end the New Urbanism.
Reverse mortgage is awesome