Canada

Canadian Seniors Rack Up Almost $3.5 Billion In Reverse Mortgage Debt

Canadian homeowners are still turning to reverse mortgages in their golden years. Office of the Superintendent of Financial Institutions (OSFI) filings show the balance of reverse mortgage debt hit a new record high in February. Annual growth for reverse mortgage debt is slowing, but still on track to double every 3 years.

What’s A Reverse Mortgage?

A reverse mortgage is a type of loan that’s secured against a home, allowing seniors access to their equity. The borrower receives either a lump sum or regular payments, while the debt racks up. The loan is similar to a home equity line of credit (HELOC), but the rates are generally higher. Also, you don’t have to pay it back until death, sale, or default.

Since a lack of payment is an option, this can be a recipe for disaster with this demographic. Seniors are unlikely to get a windfall of new income, meaning timely repayment (if at all) is not likely. Since the lender doesn’t know when they’ll get their money back, they charge a premium to HELOCs. The combination can quickly cannibalize a home owner’s equity. If you are house rich, cash poor, and in retirement – it might be attractive. If you have other options, it’s hard to see why you might take this.

Canadians Owe Over $3.5 Billion In Reverse Mortgage Debt

Canadian seniors sent the balance of reverse mortgage debt to a new record high. The balance hit $3.54 billion in February, up 0.84% from the month before. The annual pace of growth hit 28.56%, when compared to the same month last year. The pace of growth makes it one of, if not the, fastest growing segments of debt in Canada.

Canadian Reverse Mortgage Debt

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

Source: Regulatory Filings, Better Dwelling.

The Annual Pace of Growth Is Slowing, But Still VERY High

The annual pace of growth in this segment is slowing, but still remains very high. The 28.56% annual pace of growth is the smallest number since October 2017. Even so, if this is the compound annual rate of growth, it would double every 3 years. It’s slower, but still growing at breakneck speed.

Canadian Reverse Mortgage Debt Change

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

Source: Regulatory Filings, Better Dwelling.

The outstanding balance of reverse mortgage is small, but is growing very fast. This may not have seemed like a big issue while property prices were soaring. However, reverse mortgage rates are now higher than price growth in most markets. Since it’s also one of the fastest growing segments of debt, the picture doesn’t seem so rosy for a lot of homeowners.

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11 Comments

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  • XYZ 4 weeks ago

    Why aren’t people downsizing? The same people saying prices only go up, and try to rope kids into buying at peak are probably the ones that have zero saved for a rainy day, and have to take out these loans.

    • Rod 4 weeks ago

      It’ probably just the speculative mindset. Why downsize now when prices are just going to keep going up?

    • SUMSKILLZ 4 weeks ago

      If you don’t want to live in a tower, downsize to what? There’s no middle in TO. Haven’t you heard, its missing!

      I’m not sending them to some small rural hamlet to balance their budget when they are almost too old to drive. How would that work?

      So loans it is….

  • WokeMillenial 4 weeks ago

    Most of these geezers will just end up aging in place and not sell/downsize.

    Im not sure what the difference btwn HELOC and reverse mortgage is, as in can the bank call in the loan at any time like a LOC? If they can does not look like it will end well if prices crash.

    Entitled boomers with no care for future generations/the environment will get what they deserve.

    Dont worry well clean up your mess.

    • Mtl_matt 4 weeks ago

      I looked into it last time this came up. If you reversed mortgage a 1M$ home for 750k and it’s now worth 500k the bank can’t do anything until you move or die. The reverse mortgage is non-recourse, so the bank will take over the house but won’t be able to go after the succession.

    • Skylar Zerr 4 weeks ago

      A good deduction @sumskillz

  • John 4 weeks ago

    Because they dont like the value difference between their 2 storey and a bungalow.

    They think they should get more for what they have and pay less for what they want.

    The value per dollar is so much better on 2storey’s right now (Durham). But they are priced such that FTB cant afford so Bungelows are still pressing higher. We need upsizers not downsized!

  • GB 4 weeks ago

    Most seniors want to age in place.

    So expect less turnover in real estate – as the boomers continue to age.

    And they should access the equity in their home to live their lives.

    • JJ 4 weeks ago

      Agree – People should do as they please. I’d want to age in place and access my equity so I have no problem with others doing so.

      Regardless, I don’t think it is the boomers who want to age in place who have caused our speculative bubble…

  • Robert Morgan 4 weeks ago

    Perhaps, what’s lacking in this sector is competition. Last I checked only 2 banks offer Reverse-Mortgages in Canada.

  • Welbanks 4 weeks ago

    I’m not sure articles like this want to paint reverse mortgages with a negative brush. It’s a good product but doesn’t work for everyone. Our reality is, there isn’t a better product and why should they have to move if they don’t want to? If the product is explained properly, and they require independent legal advice from a lawyer, then it serves a purpose and those can be many – accessing funds to live on, paying off debts, making the home more accessible for their retirement, giving down payments or early inheritances to children… the list goes on. Let’s understand the facts before we are quick to judge or complain.

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