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With Population Aging, Canada Sees Reverse Mortgage Promise

When Canada released its 2016 census data earlier this month, media outlets took notice of one interesting tidbit: For the first time since Canada began taking surveys of its population in 1871, people older than 65 outnumbered children younger than 15.

The margin was slim, with seniors claiming 16.9% of Canada’s total population and children accounting for 16.6%. But it was enough for our neighbors to the north to sound the alarm about the country’s graying populace — and for the Canadian reverse mortgage industry to take notice.

“I’m expecting reverse mortgages to be one of the fastest-growing mortgage lines in Canada,” Mich Sneddon, a mortgage agent at Dominion Lending Centres in Toronto, told RMD in a recent interview.

At the moment, only a single reverse mortgage product exists in Canada: the “CHIP” reverse mortgage from the Toronto-based HomEquity Bank, which was initially introduced in 1986 as the Canadian Home Income Plan. Originally only available in Vancouver, the CHIP had nationwide distribution by 2001, and HomEquity rebranded the product as a reverse mortgage in 2014.

Key differences

A quick glance at Canada’s CHIP program would make it seem almost identical to the Home Equity Conversion Mortgage: Borrowers aren’t required to make mortgage payments, retain ownership of their homes, must continue covering property taxes and insurance, and need to undergo counseling — called “independent legal advice” — before closing the deal.

But unlike its American counterpart, the CHIP is available to all homeowners aged 55 and older, and is a completely private program with no mortgage insurance premiums or protections. In addition, HomEquity caps available funds at 55% of the home’s value, and even that figure is typically hard to obtain, Sneddon said.

“To reduce their risk, they lend a bit more conservatively,” Sneddon said adding that close to 99% of reverse mortgage borrowers still have equity remaining when they decide to move or sell their properties.

“I think that speaks to how conservative they are in lending practices,” he said.

Vast marketing similarities

Despite the nuts-and-bolts differences in the ways the programs operate, both HomEquity and Dominion’s marketing strategies track closely with American HECM pitches.

Click on HomEquity’s CHIP page, for instance, and you’ll find the smiling faces of Kurt Browning and Donald Jackson, a pair of Canadian figure skaters — mirroring American HECM ads that feature trusted celebrities such as Henry Winkler and Tom Selleck. (Interestingly, at only 50, Browning himself wouldn’t qualify for a CHIP or a HECM, while the 77-year-old Jackson could secure a reverse mortgage in either country.)

Like their colleagues in America, Canadian reverse mortgage brokers also note the vast quantities of home equity that older Canadians control. But because the housing market north of the border didn’t take as hard a hit during the Great Recession, Sneddon said, the effect is even more pronounced, with surging home prices in the Toronto and Vancouver metropolitan areas.

“More people here, probably, have their net worth tied up in their house,” Sneddon said, noting that the same conservative lending practices that led to a 55% CHIP equity cap also resulted in fewer shaky loans in the years leading up to the mortgage crisis and economic downturn.

A recent study found that the average Canadian household has $263,000 (in Canadian dollars, of course) in equity, and that homeowners’ total home equity would still exceed debt even if housing values were to crater by 20% to 40%, the Financial Post reported.

In his work for Reverse Mortgage Pros, Dominion’s CHIP-focused website, Sneddon relies primarily on direct outreach to consumers; as in America, people who might benefit from the product may be wary or confused about the specifics.

“I believe that this product is a great fit for a lot of people over 55, but they don’t really understand it, and they’re very unsure about putting a mortgage back on their house,” he said, echoing a common sentiment here in the States.

Future growth ahead?

CHIPs now account for about half the mortgages that Sneddon helps originate, and he only sees more growth in the future. Two more lenders are rumored to be entering the reverse mortgage market in Canada soon, Sneddon said, and the population shift shown in the 2016 census is only just beginning: Statistics Canada, the government agency in charge of the census, claimed that nearly one in four Canadians will be 65 or older by 2031, while children 15 and under will continue to account for a stubborn 16% of the population.

“There’s going to be further pressure on the public purse, especially the provinces’, which will have to contend with the services that the elderly are using,” researcher Robert Fairholm told the Globe and Mail. “And there’s going to be relatively fewer people to pay for it.”

Written by Alex Spanko