The reverse mortgage market in Canada has been increasing at a phenomenal rate over the last few years.
In fact, for HomeEquity Bank, the provider of the CHIP Reverse Mortgage, growth was well over 40% in August, bringing Canada’s outstanding reverse mortgage balance to $3.03 billion.
Compare this to the latest growth in lending for new and renewal mortgages at just 4.1% – this is the lowest since May 2001. Much of this slow-down in mortgage growth is a result of the introduction of the new mortgage stress test, which has made it harder for borrowers to qualify for the mortgage they need. Another factor is a jump in mortgage interest rates.
So, how is it that reverse mortgages are growing so much faster than conventional mortgages? And who is driving this growth?
The reverse mortgage solution and why it matters to you
The CHIP Reverse Mortgages allows you to tap into the equity of your home is available to Canadians aged 55 and over. The key difference from a regular mortgage is that borrowers don’t have to make any regular repayments. This means they can have a considerable injection of cash without having to pay off what they owe until they sell or move out of their home.
The number of Canadians over 65 has jumped by 20% since 2011, so the potential market for reverse mortgages has grown enormously in just a few years.
Life expectancy is now at almost 83 and more people are living into their 90s and beyond 100 than ever before. Retirement can now easily last 20 years or more, which can put a big strain on retirement savings. Many retirees are therefore having to look at ways to supplement their retirement income.
There are many reasons for taking out a reverse mortgage. These include paying off high-interest debt, maintaining a good standard of living, improving or retrofitting their home and helping the family out financially.
Canadians prefer to stay in their homes during retirement
A recent Ipsos/HomeEquity Bank survey revealed that a staggering 93% of Canadians aged 65+ are determined to stay in their homes during retirement, rather than downsize or move in with relatives or into a care home.
Almost 70% said that maintaining their independence was the most important reason for staying at home. Others also want to stay close to their family, friends and community.
Downsizing is an increasingly unpopular option
While downsizing has often been seen as a key strategy for accessing some home equity, its popularity is declining. Another Ipsos survey revealed that 48% of homeowners don’t plan on downsizing and that 39% are sceptical that downsizing would actually save them any money. People who regretted downsizing said the key reasons were missing their old neighbourhood, family and friends, which can play a big role in emotional well-being in your later years.
Nevertheless, 31% of retirees say they need to cash in on their home’s equity to live comfortably in retirement. So, if they don’t want to downsize, what are their options?
How the reverse mortgage helps out retirees
The introduction of the mortgage stress test has made it even harder for retirees to qualify for the kind of mortgage they need to effectively improve their finances.
Even those that do qualify often struggle to make the monthly payments required from a conventional mortgage or line of credit. A reverse mortgage provides them with tax-free cash that enables retirees to live the retirement they want, with no negative impact on their monthly income. For many retirees, a reverse mortgage is the only option available to them that provides them with the finances they need without regular required payments.
If you would like to find out more about the CHIP Reverse Mortgage and how it could help improve your retirement finances, contact your Dominion Lending Centre mortgage professional.