Reverse mortgage applications and debt are surging in Canada

By: Lisa Coxon on September 17, 2019

Reverse mortgages are growing in popularity among Canadians over the age of 55, according to June data from the Office of the Superintendent of Financial Institutions (OSFI).

A reverse mortgage is, in one sense, a similar product to a home equity line of credit, but with one glaring difference: you don’t make payments until you die.

A reverse mortgage enables those 55 and older to borrow as much as 55% of the value of their home in the form of a tax-free loan without having to pay any principal or compound interest on it until the homeowner either sells the home or dies. All the homeowner needs to do in order to keep the loan in good standing is pay property tax and home insurance, and keep the home in good condition. 

Reverse mortgages target senior Canadian homeowners because by the time someone’s reached 55, they’ve likely acquired a significant amount of equity in their home. Older homeowners are also battling high household debt levels, and may have entered their retirement years still owing debt, making the reverse mortgage an attractive alternative source of income.

Canadian reverse mortgage debt has more than doubled in less than four years — it’s now at $3.12 billion — according to OSFI. And applications are on the rise.

“We’ve only been in this market for 18 months, but applications are jumping,” Andrew Moor, chief executive officer at Equitable Group Inc., told BNN Bloomberg. 

Applications for reverse mortgages have tripled over the past year, according to Moor, and Equitable Group Inc. anticipates this sector will continue to grow by around 25% annually.

Reverse mortgages increased 22% year-over-year in June. The entire mortgage market, by comparison, rose only 4.8% in the same time period.

“Canadians are getting older and there is an opportunity there,” said Moor.

Reverse mortgages might sound like an appealing option, but their interest rates are typically much higher than those on traditional mortgages, since it takes much longer for banks to recover any payments on the loan. Equitable Bank’s current five-year fixed reverse mortgage interest rate is currently 5.74%.

Shawn Stillman, a broker at Mortgage Outlet, told BNN Bloomberg that reverse mortgages have “the ability to erode the asset of the borrower.”

According to BNN Bloomberg, only two lenders offer reverse mortgages in Canada; HomeEquity Bank and Equitable Bank. Home Equity Bank has offered reverse mortgages for 30 years and has provided $3.11 billion worth of them to homeowners. Equitable Bank, on the other hand, has just $10.1 million.