Despite having only two reverse mortgage lenders to choose from, Canadian homeowners have been flocking to the products in recent years — with the overall outstanding debt balance climbing by nearly 25% in just one year.
At the end of March, Canadians had $2.4 billion worth of reverse mortgage debt, the country’s Office of the Superintendent of Financial Institutions reported in its most recent set of data.
That’s a 24.6% increase over the same month in 2017, according to Better Dwelling, a Canada-based real estate publication that first reported the reverse mortgage balance information.
“The balance is relatively small in contrast to other types of debt, but the growth rate is very high,” Better Dwelling observed.
Until this year, the Canadian reverse mortgage market had been dominated by HomEquity Bank, a Toronto-based lender that has offered its CHIP Reverse Mortgage loan since 1986. But competition came to the country in January when Equitable Bank launched its Path Home Plan; both companies target homeowners aged 55 and older, and offer the product without any form of government backing.
“Canadians deserve options when it comes to their financial well-being as they age, and we want to help homeowners stay in control while still living in their homes,” Equitable Bank’s Kim Kukulowicz said at the time of the product’s introduction.
Reverse mortgage and “equity release” products have increasing appeal in Canada, which faces similar demographic trends as in the United States — Canadians over aged 65 outnumbered children younger than 12 for the first time last year — and sky-high home prices in key markets such as Toronto and Vancouver.
“With the combination of favorable demographics, increased home equity values, and less support from traditional defined benefit pension plans, we believe that the Path Home Plan will provide a valuable option to Canadian seniors,” Equitable president Andrew Moor said in a January statement.
So far, the numbers have borne out the prognosticators’ outlook: Balances have grown at a double-digit pace for the last seven years, Better Dwelling reported, and at this rate, they will double in less than three years. Still, the publication brings up a familiar reason for why reverse mortgages may face some resistance going forward.
“The combination of encouraging no-payments, and high interest rates, is a recipe for wiping out a huge amount of equity over a very short period of time,” Better Dwelling concluded. “Great if you’re in a pinch and need some cash. Not so much if you were hoping to leave your kids anything.”
Written by Alex Spanko