Reverse mortgages increase by 26% in Canada

The reverse mortgage business has grown by 26% year-over-year in Canada according to HomEquity Bank. HomEquity Bank forecasts issuing 3,000 new reverse mortgages in 2014 based on its current data.

Reverse mortgages are on the rise for many reasons, including increased consumer education on their feasibility, a widening decline in Canadian retirement savings, and the attractiveness of being able to take out a home equity loan without monthly payments, which increases the quality of life for reverse mortgage holders.

Two-thirds of Canadians do not have pensions

The Canadian Association for Retired Persons (CARP) stated in a May 2014 media release that more than two-thirds of Canadians do not have a workplace pension plan and few other options to provide for retirement. In this landscape of reduced retirement savings, reverse mortgages have emerged as an option to help fill the gap.

The benefits of reverse mortgages

Reverse mortgages have many advantages, the largest one being a lack of monthly payments. The loan is only due when you sell your home. Reverse mortgages are also offered at a fixed interest rate, while a home equity line of credit (HELOC) is usually offered at a variable interest rate. In addition to having to pay monthly payments on a HELOC, you may find your payments jumping if the variable rate rises. For seniors living on a fixed income, the unpredictability of a variable rate is unacceptable.

On the CHIP home income plan, you can borrow only up to 50% of the equity in your home. Jeff Spencer, VP of National Sales for HomEquity Bank states “After 28 years — and through one of the worst financial crises we’ve seen in Canada — in most cases at the time of sale our clients have an average of 50 per cent of the equity left in their homes.” This means that there are usually still adequate funds left over after the sale of the home to provide for nursing home costs or a legacy for children.

If you’d like to know more about reverse mortgages, contact us at Horizon Equity for some friendly advice.