More than 9 out of 10 Canadians want to be able to live out their retirement years in the comfort of their home, and reverse mortgages are increasingly being used to make that a reality.
Of those aged 45 years and older, an overwhelming 95% of Canadians said being able to “age in place” (AKA, in their homes) would “allow them to maintain their independence, comfort and dignity as they age,” according to a new survey by reverse mortgage provider HomeEquity Bank.
That’s largely unchanged from 2020, when a similar survey from the National Institute on Ageing found more than nine out of 10 Canadians plan on “supporting themselves to live safely and independently in their own home as long as possible.”
At the same time, reverse mortgage debt held by seniors reached a new record of $5.4 billion as of February, up over 18%, or $829 million, from a year earlier, according to data from the Office of the Superintendent of Financial Institutions (OSFI).
“Canadians who want to age in place shouldn’t be choosing between food and living expenses or having the support of PSWs,” Steven Ranson, President & CEO of HomeEquity Bank, said in a release. “The importance of helping ageing Canadians access affordable in-home care from personal support workers cannot be overstated as our population ages.”
Unsurprisingly, then, many seniors are turning to reverse mortgages, which allow them to extract the equity from their homes to supplement their retirement.
The benefits of reverse mortgages
Once homeowners reach the minimum qualifying age of 55, reverse mortgages are generally easy to qualify for.
They allow senior homeowners to extract the equity they’ve built up in their home, either by way of tax-free lump-sum or monthly payments.
Reverse mortgages are structured so that seniors can never owe more than their home is worth. The debt is typically repaid once the house is sold or the homeowner passes away.
While reverse mortgages require no monthly payments, the typically higher interest rates, currently in the 5% and 7% range depending on the terms, can quickly eat away at proceeds from the sale of the house. On the other hand, most homeowners have experienced a substantial increase in home equity thanks to rising prices over the past couple of years.
Record earnings from reverse mortgages in 2021
Given this growing need for cash, Canada’s two predominant reverse mortgage providers have experienced record growth over the past year.
HomeEquity Bank saw reverse mortgage originations surpass $1 billion in 2021.
“This continued strong growth demonstrates the relevance and importance of our financial solution in Canada,” HomeEquity’s Ranson said.
Similarly, Equitable Bank saw its reverse mortgage portfolio grow 325% to $247 million in the first quarter of 2022.