Canadian home prices are moving faster than wages, leaving a lot of cash-poor, house-rich Boomers. The Ontario Teachers’ Pension Plan Board (OTPPB) must see opportunity, because they are buying a large reverse mortgage lender. The pension announced its acquisition of HomeEquity bank today. It might not be a familiar name, but their flagship product might ring a bell — CHIP Reverse Mortgages. The lender is the largest provider of reverse mortgages, which are on the climb again.
OTPPB To Acquire Canada’s Largest Reverse Mortgage Lender
The OTPPB announced they’ll be acquiring HomeQ, the parent company of HomeEquity Bank. The bank is behind CHIP reverse mortgages, an extremely fast-growing debt product. An announcement went out today, but it’s still subject to regulatory approval. Failing any issue there, the deal should be done in the first half of 2022. Once completed, the pension will own the largest reverse mortgage player in Canada.
Reverse Mortgages
If you’re not familiar with reverse mortgages, they’re a straightforward concept. Reverse mortgages are a type of loan where seniors pledge their home equity in exchange for cash. Lenders either deliver the funds as a lump sum, or regular payments over the term — whatever is agreed. It’s basically a mortgage in reverse, not unlike the name suggests. Another similar product is a home equity line of credit (HELOC). The biggest difference between a HELOC and a reverse mortgage is the repayment terms.
Unlike a HELOC, a reverse mortgage doesn’t require regular payments. Generally, payment is only required after death, default, or a sale. In exchange for the generous payment terms, the lender charges higher interest rates. It makes sense from the lender’s perspective since they have no idea when they’ll be repaid. From the borrower’s perspective, it might not be the best option.
Borrowers have a few issues to consider — it doesn’t take your income into account, and it’s expensive. Being on a fixed income with not a lot of money, but a lot of home equity is a dangerous combination. Borrowers that don’t have a repayment plan, or use it to fund retirement, can see their equity disappear quickly. That can leave the borrower with significantly less funds than they may have planned.
Canadians Owe $4.83 Billion In Reverse Mortgage Debt, and It’s Climbing Fast
More and more cash-poor, house-rich Boomers are seeking out reverse mortgages. The outstanding balance of reverse mortgage debt reached $4.83 billion in July, up 12.46% from last year. This is a new record high for reverse mortgage debt.
Canadian Reverse Mortgage Debt
The total of reverse mortgage debt held by regulated financial institutions, in Canadian dollars.
Source: Regulatory Filings, Better Dwelling.
The growth rate is also worth a quick mention. The 12.46% annual growth in July is the highest level since October 2020. Except back then the market was showing deceleration of growth. Now we’re looking at high growth accelerating. As living costs rise faster than the CPI-indexed pensions, this is primed for a run higher.
Canadian Reverse Mortgage Debt Change
The annual percent change of reverse mortgage debt held by regulated financial institutions.
Source: Regulatory Filings, Better Dwelling.
Reverse mortgage debt is likely to see huge growth as Canada’s population ages. Home prices have long outpaced income, and are now how many people fill the gap. Expensive housing also means fewer people will have funds for anything but a home. It’s a huge growth opportunity for the pension. It is ironic to see a pension make a big bet on others not having enough in retirement though.
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Boomers will be left holding the bag. Reverse mortgages are SCAMS and I’m disgusted with Tom selleck shilling rm’s to gullible boomers and promising them it isn’t a trick, yes it is Tom.
But that’s their fault for being naive. Interest rates have nowhere to go but up. Either way you look at it the economy is going to tank at both pendeleum ends….negative interest rates equals high inflation which will destroy our dollar, sure we might pay off our debt but we’ll be poor for 2-3 generations. On the other hand high interest rates will benefit the young and screw the boomers, I don’t see a problem with this but we’ll still be poor. The (S)elected politicians whom are the worst gangsters have led this country to the dumpyard and destroyed hopes for all us X’ers, millennials and zoomers.
Hi D, I’m one of the latter boomers and totally agree with you.
Negative interests rates are immoral, prevent savings and abnormally inflate asset prices.
Millennials and Zoomers have been thrown under the bus.
This fifty year inflation super-cycle started with that SOB Nixon on August 15, 1971 and perpetuated by both the all central bankers and politicians since.
>This fifty year inflation super-cycle started with that SOB Nixon on August 15, 1971 and perpetuated by both the all central bankers and politicians since.
You’re right on that. Both our dollar and the American dollar and every currency has lost so much value since the removal of the gold standard.
Reverse mortgages are the Money Mart of financial products.
They target cash poor clients with high interest rates and exacerbate the housing affordability issues by keeping home off the market which would otherwise increase the real-estate inventory.
I think there just needs to be more education. These reverse mortgages play on the emotions of seniors. Let you stay in your oversized family home that you probably raised your family in. Now here is an instrument that allows you to make a terrible decision out of emotional attachment to that home. The wise thing to do would be to downsize now that your family has moved on. Put that equity to work instead of paying interest on it. You can move into something with lower maintenance and operating costs. It is a perfect storm though with house prices having ridden on the gravy train of artificially low interest rates and significant increased values resulted over the prior several years. Staying invested in the real estate market has paid off but borrowing more to invest further into an inflated market at this time should not be a decision taken lightly. Maybe its time to get out not dug in further.