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

Regulators watch loan growth and say there are risks

Content of the article

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.

Advertisement 2

Content of the article

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.

Content of the article

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.

Advertisement 3

Content of the article

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).”

Advertisement 4

Content of the article

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.

  1. Older Canadians are worried about the impact of inflation on their finances.

    Canadians retiring early find it’s more expensive than they thought

  2. OSFI also sounded the alarm about an overheated housing market and overleveraged borrowers, which made the financial system more sensitive to a price correction.

    Real estate recession and cyberattacks are top risks to Canada’s financial system, says OSFI

  3. Nothing

    Reverse mortgages rise in Canada as stigma fades

  4. Nothing

    FP explains: Everything you need to know about using a reverse mortgage

Advertisement 5

Content of the article

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.

• Email: [email protected] | Twitter:

Advertisement

comments

Postmedia is committed to maintaining a lively yet civil discussion forum and encourages all readers to share their views on our articles. Comments can take up to an hour to be moderated before appearing on the site. We ask that you keep your comments relevant and respectful. We have enabled email notifications. You will now receive an email if you receive a reply to your comment, if there is an update to a comment thread you follow, or if a user follows you comments. See our Community Guidelines for more information and details on how to adjust your email settings.

Comments are closed.