Demographic trends and a decline in savings are driving trends for growth in the Canadian reverse mortgage market. Steven Ranson is the president and CEO of HomEquity Bank, the bank behind the Canadian Home Income Plan (CHIP), which Horizon Equity provides to our clients. According to Ranson in this recent article for Mortgage Broker News, “With the current demographic trends and extended life expectancy we project reverse mortgage originations to grow at 25-30 per cent annually over the next few years.”
13 percent of Canadian population nearing retirement
Home values are increasingly playing a part in retirement planning, with an increase in reverse mortgages of 21 percent at HomEquity Bank over last year. The 55-59 age bracket makes up just over 7 percent of the total Canadian population, and the 60-64 age group makes up just over 6 percent. That is a little over 13 percent of the Canadian population that is nearing retirement. If they don’t have enough saved, a reverse mortgage is a viable option to fill the gap.
More seniors going into debt in retirement and pre-retirement
Retirement savings are being depleted by a number of factors; job loss, investments which didn’t do as well as expected, and gifts to adult children. With a reverse mortgage, shortfalls from unexpected factors such as investment or job losses can be made up. If you want to help out adult children with a wedding, a first home, or anything else a reverse mortgage can help you do it without impacting your retirement savings.
The Ontario Securities Commission found that six out of ten Canadians have gone through life changes which impacted their financial planning strategies. Life changes can include things like divorce, losing a long-term job, long-term disability and more. So if you are heading into retirement with a hole in your retirement plan because of something that happened to you, you are by no means alone.
Canadian generosity: blessing and curse
Parents naturally want to help out their children with everything that they can. The trouble is, sometimes we can overestimate our capacity to help out financially. It’s easy to look at the bank account and say “it shouldn’t be a problem, I’ve got the money,” if a family member needs help. But you should think about your own retirement, and if the money you’ve saved will be enough for you should you live for a very long time – which more Canadians are doing. Keep in mind that there may be costs for assisted living, health care not covered by the government and more.
How reverse mortgages can help affordably
A reverse mortgage allows you to borrow up to half of your home equity, and isn’t repayable until the home is sold. This means no monthly payments. And borrowing at today’s low interest rates is advisable; a reverse mortgage won’t cost you much more than similar vehicles right now. If interest rates go up and you need money in your later years for anything, the interest rates will likely be higher. Plus, if you remove money from your retirement savings to pay for something, you lose out on the accrued interest which those funds will accumulate over time.
Contact Horizon Equity today to find out how we can help you with a reverse mortgage under the CHIP Home Income Plan.