Canadian Seniors Raiding Their Home Equity With Reverse Mortgages Picks Up Again

Canadian seniors briefly slowed down home equity borrowing last year, but it’s picking up again. Regulatory filings with the Office of the Superintendent of Financial Institutions (OSFI) show the balance of reverse mortgage debt reached a new record high in April. Growth has slowed down from all-time highs, but the balance of reverse mortgage debt is seeing growth trend higher once again.

Reverse Mortgages

A reverse mortgage is an equity release program without a fixed repayment schedule. Canadian seniors can take out a loan secured by the equity in their home. The reverse mortgage lender then gives the equity in regular payments, or as a lump sum. It’s similar to a home equity loan, but with one major difference – the payment schedule.

Typically repayment is only required in the event of death, default or sale. This isn’t exactly a charitable endeavor though. With no fixed payment schedule, the lender has to charge a higher rate of interest, than you would get with a HELOC. This interest racks up in the background, eating away at remaining equity. Since these loans target people past their prime earning years, it becomes a little more difficult to pay off without selling. This can either leave homeowners with a lot less equity than they might assume.

Canadian Reverse Mortgage Debt Hits $4.21 Billion

The total balance of reverse mortgage debt is still growing very quickly. The balance reached $4.21 billion in April, up 0.76% from a month before. This works out to an increase of 15.09% when compared to the same month last year. This is a new record, and nearly triple the balance just three years ago.

Canadian Reverse Mortgage Debt

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

Source: Regulatory Filings, Better Dwelling.

The year-over-year growth trend saw a mild dip, but is generally moving higher. The 15.09% year-over-year increase in April is lower than the month before. However, it’s up from the 13% seen in December. Growth is now more in line with the rate seen prior to 2017. That is, it’s not quite as robust as we’ve been seeing, but still one of the fastest growing segments of debt.

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 growth reached a new record high, with a substantial rate of growth. The balance is rising a little slower than last year, but still at a rate nearly 3x regular mortgage debt. Considering the pandemic slowed residential real estate activity, it’s quite remarkable to see reverse mortgage credit barely skip a beat.

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