The reverse mortgage business across Canada is continuing to prosper, as evidenced by a notable increase in balance figures of more than double compared to figures from 2015. This is according to original reporting by Bloomberg.
“Outstanding balances on reverse mortgages have more than doubled in less than four years to C$3.12 billion ($2.37 billion), excluding foreign currency amounts, according to June data from the country’s banking regulator,” Bloomberg writes. “Although they represent less than one percentage point of the C$1.2 trillion of residential mortgages issued by chartered banks, they’re growing at a much faster pace. Reverse mortgages rose 22% in June from the same month a year earlier, versus 4.8% for the total market.”
Unlike the reverse mortgage business in the United States, the Canadian business has only two major, prominent players both based in Toronto, Ontario: HomeEquity Bank, which has been in the business for over 30 years and is far and away the most dominant player, and Equitable Bank, which only recently entered the space but which has noted a major increase in incoming reverse mortgage applications.
“We’ve only been in this market for 18 months, but applications are jumping,” and have tripled over the past year, says Andrew Moor, chief executive officer at Equitable Group Inc. to Bloomberg.
Equitable Group is the operator of Equitable Bank, and CEO Moor says that the company’s reverse mortgage sector is expanding by approximately 25% a year, indicating that older Canadians are seeing opportunities for their retirement goals through the employment of a reverse mortgage.
Another factor that could be contributing to the growth of the product in Canada is that more seniors are entering retirement carrying debt, while rent costs have risen in many Canadian cities that complicate the process of downsizing in an active real estate market. That could be one of the reasons why reverse mortgages are seen as increasingly attractive.
While interest rates are higher for reverse mortgages in Canada, the Chief Financial Officer at HomeEquity Bank relates to Bloomberg that those higher rates are justified since the lender typically doesn’t receive any payments over the life of the loan.
Executives at both Canadian providers have also been inspired by the United States in at least one way: taking a more proactive approach to borrower education, in order to avoid some of the observed pitfalls of the 2008 financial crisis in the U.S. One of the tactics being observed based on that observation is the avoidance of an aggressive advertising strategy. Default rates have also remained stable, according to HomeEquity Bank’s CFO.
Read the full story at Bloomberg.