The company that administers the CHIP home income plan, HomEquity Bank, is forecasting growth of reverse mortgages in Canada of 25-30 percent each year for the next few years. Where is this spike in reverse mortgages coming from, and who is getting them?
Younger Boomers who are house rich and cash poor
According to this article in the Globe and Mail, people get reverse mortgages for a number of different situations. A musician, John Agius, had paid off his Toronto home in 1978 – and its obviously appreciated since then. Agius, 58, had a bankruptcy on record, so couldn’t get any loans from banks. His reverse mortgage of around $100,000 will go to help finance his lifestyle and allows him to stay in his home. He says that he would have had to sell his home had a reverse mortgage not been an option.
People with debt want to pay it off
Over a third of HomeEquity clients take out a reverse mortgage to pay off debt. The typical rate for a reverse mortgage is around 5-6 percent, while items like credit cards, lines of credit and so on generally average about a 10 to 20 percent interest rate. Long term, this adds up to significant interest costs that will cost seniors during and later in their retirement. Cutting out higher interest debt at any point in retirement will help you save money long-term.
Financial stress relief
Finances can be a significant source of stress, according to this survey by the Financial Planning Standards Council. 42 percent of all Canadians, including seniors, ranked money as their greatest source of stress. A reverse mortgage can act as a financial pressure valve in retirement, relieving that stress and providing for a more comfortable lifestyle.
Cautionary notes from estate planner
A notary and estate planner with Eastwood and Associates, John Eastwood, cautions that reverse mortgages shouldn’t be used for one-time purchases, such as vacations. This is absolutely correct – due to the costs of getting a reverse mortgage, which involve hiring a real estate lawyer for the transaction and a home inspector, it isn’t usually recommended to take out a reverse mortgage for any amount under $10,000. He also cautions against the prepayment penalties, which rarely come into play as most seniors get a reverse mortgage to avoid monthly payments until the home is sold – something you can’t do with a line of credit.
If you have any questions about getting a reverse mortgage, contact Horizon Equity today and we’ll be happy to answer them.