Reverse mortgages take off as more Canadians seek to age in place

Regulators watch loan growth and say there are risks

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More and more Canadian seniors have tapped into their home equity to fund their retirement during the pandemic, which has boosted income for lenders who offer reverse mortgages and other similar loans.

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One of them, Equitable Bank Inc., reported a 262% year-over-year increase in its reverse mortgage product in the first quarter 2022 results announced this week. In total, Equitable issued $304 million in loans, up 23% from the last quarter of 2021.

Reverse mortgages generally work like home equity lines of credit and allow Canadians to increase the equity in their home in exchange for a lump sum of cash or a steady stream of payments.

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Soaring home prices, spurred by low interest rates and the desire for more space among many Canadians, mean homeowners have a booming capital to tap into.

The balance of outstanding reverse mortgages hit a new high in February at $5.4 billion, according to regulatory filings by the Office of the Superintendent of Financial Institutions.

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Andrew Moor, president and CEO of EQ Bank, said in an interview that the pandemic has caused a shift in attitudes towards retirement among Canada’s aging population.

“(COVID) makes it less desirable to live in congregational situations and people prefer to stay in their homes,” Moor said, what the industry calls “aging in place.”

Equitable Bank announced a 262% year-over-year increase in its reverse mortgage product in the first quarter of 2022.
Equitable Bank announced a 262% year-over-year increase in its reverse mortgage product in the first quarter of 2022. Photo by Chris Helgren/Reuters

Moor said the idea of ​​a reverse mortgage is starting to resonate with Canadians as the country catches up to others where it’s more prevalent.

“When we got into the business, it certainly felt like it was a less understood approach in Canada than other similar types of economies,” Moor said. “That’s one of the reasons we got into the reverse mortgage business, we thought it was an under-tapped (market).”

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According to Moor, reverse mortgage penetration has been higher in the UK and Australia than in Canada, with the UK market being five times larger than Canada’s when the target demographic is adjusted per capita.

With Canada’s aging population, Moor expects the reverse mortgage market to continue to grow.

He was less certain of the impact that rising costs and high inflation for decades might have.

“I think it’s hard for us to say,” Moor said. “We continue to see robust demand, I can tell. Whether that’s due to inflation or our own selections in the market (we supply to customers)… it’s hard to say.

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The rapid increase in reverse mortgages has OSFI on its toes.

In April, he said he was monitoring these types of loans. More recently, OSFI Deputy Superintendent Ben Gully has stressed the need to consider the risks associated with these products.

“Our message has been simply that (these loan products) are important developments in the market, but they can hide growing credit risks on the books, and so we’ve spent a lot of time reinforcing those messages over the years. two years and to keep innovations safe and careful and our companies we oversee understand the risks,” Gully told the Financial Post.

Gully added that the organization has given careful consideration to these innovations while clarifying oversight expectations, some of which are already outlined in the B-20 guidelines.

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