Canadian Reverse Mortgage Debt Tops $4 Billion For The First Time Ever

Canadian seniors pushed another segment of debt to a new milestone. Office of the Superintendent of Financial Institutions (OSFI) filings show reverse mortgage debt hit a new all-time high in December. The high is the first time reverse mortgages reached a balance of over $4 billion.

Reverse Mortgages

For those that don’t know, a reverse mortgage is an equity release program from seniors. They secure a loan with equity against their home, in exchange for a lump sum or regular payments. They’re kind of like a home equity line of credit (HELOC), but with a big difference – there’s no fixed repayment.

Generally, payment is only required in the event of death, default, or sale. In exchange for this privilege, borrowers pay a slightly higher rate than a HELOC. The advantage here is cash strapped Boomers have access to capital in retirement, and they can age in place (i.e. won’t have to downsize). The disadvantage is taking out a loan with high interest, with no encouragement to repay. This may result in compounding that wears down more equity than the borrower may expect.

Canadian Reverse Mortgage Debt Tops $4 Billion

The balance of outstanding reverse mortgage debt reached a new milestone. There was $4.01 billion in reverse mortgage debt in December, up 0.69% from the month before. This represents an increase of 13.00% from last year. This is the first time in history reverse mortgage debt has breached the $4 billion mark.

Canadian Reverse Mortgage Debt

The total of reverse mortgage debt held by regulated finacial instituitions, in Canadian dollars.

Source: Regulatory Filings, Better Dwelling.

Reverse Mortgage Growth Falls To Lowest Level In Over 7 Years

The rate of growth for reverse mortgage debt is falling very quickly from highs. The 13.00% 12-month increase for December, is the lowest in at least 7 years of filings – and likely goes back further. For a little context, residential mortgage credit is growing at 5.1% in January. Reverse mortgage credit is slower than usual, but not all that slow.

Canadian Reverse Mortgage Debt Change

The annual percent change of reverse mortgage debt held by regulated finacial instituitions.

Source: Regulatory Filings, Better Dwelling.

Canadian reverse mortgage debt reached a new milestone, but saw growth slow. Even with the substantial drop in the rate of growth, this is still very high. As this number increases, growth is expected to taper even further. Possibly a bit of a problem, considering this was not an insignificant amount of consumer spending.

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