Canada

Reverse Mortgage Debt On Canadian Real Estate Is Rising $1.25 Per Second

Reverse Mortgages Are Exploding In Growth Across Canada

Canadians short on retirement funds may be turning to using their home equity. Numbers from Office of the Superintendent of Financial Institutions (OSFI) show that reverse mortgages experienced huge double digit growth in October 2017. That’s good news for reverse mortgage lenders, but bad news for a country increasingly addicted to debt.

A Reverse Mortgage?

Reverse mortgages are exactly what they sound like – a mortgage in reverse. People aged 55 and up, borrow against the equity in their home. They don’t have to repay the debt until they sell or transfer, which is ideal for consumers on a fixed income. It’s different from a Home Equity Line of Credit (HELOC), since there isn’t a fixed repayment term. Only one company offers these in Canada as of right now, CHIP by HomEquity Bank. OSFI numbers are a total, but technically all of this debt is held by just one bank.

Don’t get too excited, reverse mortgage lenders aren’t charities. You don’t have to repay until you sell, but interest quietly racks up while you don’t – at a pretty steep rate. The lowest posted reverse mortgage rate from CHIP is 5.39%, vs the lowest posted HELOC rate of 3.7%. That’s a 45.76% premium on a HELOC. A justifiable premium, since the lender has no idea when borrowers will pay them. It does slowly kill the borrower’s home equity, but that’s not their problem. That’s a problem for whoever gets the estate.

Reverse Mortgage Debt Grew Over 22%

Canadians are rushing in to draw on their home equity using reverse mortgages. OSFI filings show that reverse mortgages held at banks added up to $2.175 billion at the end of October 2017, a 2.02% increase from the month before. This works out to a 22.27% increase compared to the same month one year before. An increase that size works out to an average of $1.25 per second. Reverse mortgage debt could be the fastest growing segment of debt in the country.

Source: OSFI, Better Dwelling.

Reverse mortgage debt rising at $1.25 per second is definitely a trend to keep an eye on. As Canada’s population ages, more people that bought a home at the expense of saving for retirement will be looking to extract equity.

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17 Comments

  • Reply
    Barend 4 months ago

    Don’t expect a windfall from grandpa and grandma. They’ll probably be underwater by the time they leave you that house.

    “To my grand son Justin, I leave you the negative equity I accumulated in this house. Never forget me!”

    • Reply
      Dennis 4 months ago

      This is a lower middle class issue. They lack the education to understand how to better invest their money. They shop at Walmart and will leave nothing for their offspring. I am reading the information on this site for the betterment of my children and their children which I may ever meet.
      The fact remains that cheap credit and financing is providing excess liquidity. It is showing up everywhere, stock, bitcoin, housing. We are now in a credit tightening cycle, act accordingly, re-allocate your assets.
      I have divested my RE holding and will re-enter only when credit conditions loosen or when support is reached.

  • Reply
    Micheal Z. 4 months ago

    You earned it, you should spend it. Good for those that were smart enough to buy a home when they were young, it’ll fund their retirement. They’re probably much better off than people that decided to just throw their money away renting.

    • Reply
      Luigi Vampa 4 months ago

      Do be intellectually dishonest. “Throwing away money on rent” is a tired cliche. I’m a home owner but can still recognize that there are many scenarios in which people are better off renting than owning, including ones where they invest their additional savings and come out with greater returns in the long run. Real estate is just one of many investment types and its more or less historically proven not to necessarily achieve the best returns. Don’t be so narrow minded.

    • Reply
      Tim 4 months ago

      LOL, thanks for the first stupid comment of 2018…..only thing that comes out of your posts…..LOL your in your 20’s right? maybe just hit 30’s…..you sure do act like it….MAN I wish I could have you into my office……

    • Reply
      bluetheimpala 4 months ago

      Thanks for the comment. It doesn’t seem like you understand the overall issue at hand or real estate in general. I recommend reading old posts to get up to speed. If you are a RE agent…keep these posts coming, it helps me understand your mindset and how you will be advising your clients. One a side, I have these beans that can do some pretty amazing things, let me know if you’re interested….

    • Reply
      Joe 4 months ago

      Tech equities are up on average 18x since 2008… other sectors up 3-10x… overall markets in safe ETFs (S&P) are up 4x since 2008. I’m sorry to break it to you but anyone who rented and put money into those rather than paying mortgage interest and property tax (throwing away money on a mortgage) are actually *well* ahead. So probably best not to try the old “throwing away money on rent” to people that understand math and the markets 😀

      • Reply
        Joe 4 months ago

        Also don’t get me wrong, home ownership is great if you want to purchase and live in a home as I have, but note that as an investment a primary residence is actually a fairly poor investment in comparison to the market and other investment vehicles.

        • Reply
          bluetheimpala 4 months ago

          Word is born. Housing used to be just that; a house. You live in it, have a family/cats and then one day the asset is sold off. If you maintained it and bought in a good location it has gone up and you have some $$$. It only became an ‘investment’ over the last 2-3 years are the FOMO took hold despite limited fundamental to support the price increases. Parents running out to extract equity from their homes only bolstered this fear. Also, the middle class has been gutted and never rebounded after 2008…this housing downturn is going to be a kick in the teeth.

          On a side: 100% agree, if you had even a middle of the road asset manager 5 years ago your portfolio double or tripled net of fees.

      • Reply
        Brimley 4 months ago

        @Joe, I guessed you should talk to Blackberry shareholders 🙂 Blackberry was the top tech stock at TSE then. If you want to try further down, let us say Nortel, which is the top tech stock in 1999. Lol.

        • Reply
          bluetheimpala 4 months ago

          Blackberry is a stock. with underlying fundamentals. A house a a bunch of bricks and wood. No revenue or assets. There isn’t any R&D in the pipeline, leverage buyouts or stock splits. Your house doesn’t go private and restructure. It can’t lay off employees or move production offshore.
          While I agree with your core point (i.e. nothing lasts forever) your oversimplification of it only falls on deaf ears. This is more of a ‘Toronto SUN’ reply but I appreciate the insight.

          Now go check on those comparables you crazy RE rascal!

          BD4L

        • Reply
          Joe 4 months ago

          Or talk to myself with roughly 1800% gains since 2008 due to buying everything I could while everyone else was selling. You’re simply trying to call out a few stocks out of the 1000s… which is incomparable…. as that’s like saying you purchased the door of a house. Anyone that puts all their money into a single position needs proper advice.

          The majority of people should hold ETFs, rather than individual stocks, unless they know how to build a long term portfolio. When you hold index ETFs like the S&P and TSX they have outpaced housing throughout the entirety of history, many times over.

      • Reply
        Tommy 4 months ago

        While that’s true, the number of renters that actually invest their surplus funds into equities can probably be counted on your hands. Most renters are irresponsible and/or don’t make enough money to invest in anything. This is why, for most people, owning a home is a better choice. It doesn’t have much of a return but it’s a forced savings.

        • Reply
          Joe 4 months ago

          I’ve never seen stats, but I do believe you would be correct Tommy. I was only saying to the OP that using a blanket statement is pretty stupid, as there are many wealthy people who choose to rent as they have no interest in real estate or property upkeep. Personally I wanted to own my home, but I look at it as a purchase, rather than investment.

  • Reply
    Sam 4 months ago

    Just $1.25 per second? Psh.. we can beat that, can’t we!

  • Reply
    Jungle 4 months ago

    Here’s a trick to use a HELOC instead and save money: when the loan payment is due, withdraw the exact amount and use it to pay the loan.. it will count as paid and accomplish the same thing as CHIP but save you about 2% annual in interest.

    The CHIP / heloc equity withdraw sounds crazy , but I was thinking. The utility to value ratio is absurd, especially in some areas of VAN and Toronto.

    The house still provides the same utility whether it’s 300k or 1.3 m
    Put that in a stock portfolio and you get the ultimate utility. If I was retired, I can make 1.3m do a lot more than just provide shelter.

    Anyway, if you’re retired and have a lot of equity, and assuming your not investment savvy, why not take some out with heloc / chip?

    Or better yet, just invest the equity in a balanced portfolio and get a tax deduction. Long term gains should beat heloc.

  • Reply
    Justin Thyme 4 months ago

    I don’t quite understand the business model of CHIP. They only get their money back when you die. Since the age is ’55 or older’, they could be waiting 30 or more years before they collect. Seems to me it is a really cash-flow-poor business model. I can’ imagine that there are not better ways for the company to invest their money, which has a better cash flow model.

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