Reverse mortgages take off as more Canadians look to age in place

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May 12, 202210 minutes ago3 minutes read Join the conversation Reverse mortgages typically work like lines of credit for home equity loans, allowing Canadians to invest the equity in their home for a lump sum or constant cash flow. Reverse mortgages typically work like lines of credit for home equity loans, allowing Canadians to invest the equity in their home for a lump sum or constant cash flow. Photo by Getty Images/iStockphoto

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More Canadian seniors have been tapping into their home equity to fund their retirement amid the pandemic, giving lenders offering reverse mortgages and other similar loans a boost in profits.

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One of them, Equitable Bank Inc., reported a 262 percent year-over-year increase for its reverse mortgage product in earnings this week for the first quarter of 2022. Overall, Equitable has originated $304 million in loans, a 23 percent increase from the last quarter of 2021.

Reverse mortgages typically work like lines of credit for home equity loans, allowing Canadians to invest the equity in their home for a lump sum or constant cash flow.

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A surge in home prices, fueled by low interest rates and a desire for more space among many Canadians, means homeowners have a burgeoning pile of equity to draw on.

The outstanding reverse mortgage balance hit a new high of $5.4 billion in February, according to regulatory filings from the Office of the Superintendent of Financial Institutions.

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Andrew Moor, President and Chief Executive Officer of EQ Bank, said in an interview the pandemic has prompted a shift in attitudes towards retirement among Canada’s aging population.

“(COVID is) makes living in gathering situations less desirable and people prefer to stay in their homes,” Moor said, which the industry calls “aging in place.”

Equitable Bank reported a 262 percent year-over-year increase in its reverse mortgage product in the first quarter of 2022. Equitable Bank reported a 262 percent year-over-year increase in its reverse mortgage product in the first quarter of 2022. Photo by Chris Helgren/Reuters

Moor said the idea of ​​a reverse mortgage is starting to resonate more with Canadians as the country catches up with others where it’s more common.

“When we got into the business, it certainly seemed to us that this was an approach that was less understood in Canada than in other similar economies,” Moor said. “That’s one of the reasons we got into reverse mortgage business because we believed it was an underdeveloped[market].”

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According to Moor, reverse mortgage penetration is higher in the UK and Australia compared to Canada, with the UK market being five times larger than Canada when target demographics are adjusted on a per capita basis.

With Canada’s aging demographic, Moor believes the reverse mortgage market will continue to grow.

He was less sure of the implications of rising costs and decades of inflation.

“I think it’s hard for us to say,” Moor said. “We continue to see robust demand, I can say that. Whether this is caused by inflation or by our own choices in the market (which we offer to our customers)… it’s hard to say.”

  1. Older Canadians worry about the impact of inflation on their finances.

    Canadians taking early retirement are finding it’s more expensive than they thought

  2. OSFI also sounded the alarm about an overheated housing market and over-indebted borrowers, which have heightened the financial system's sensitivity to a price correction.

    According to OSFI, the real estate crisis and cyber attacks are the greatest risks for the Canadian financial system

  3. none

    Reverse mortgages are on the rise in Canada as stigma eases

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    FP explains: Everything you need to know about using a reverse mortgage

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The rapid rise in reverse mortgage lending has OSFI on guard.

In April, she said she was keeping an eye on these types of loans. Recently OSFI Assistant Superintendent Ben Gully reiterated the need to consider the risks of such products.

“Our message was quite simply that (these credit products) are important developments in the market but can hide the rising credit risks on books and that is why we have spent a lot of time over the last few years to support these messages and make that innovations staying safe and prudent and that our firms that we oversee understand the risks,” Gully told the Financial Post.

Gully added that the organization has paid close attention to these innovations while clarifying regulators’ expectations, some of which are already outlined in the B-20 guidelines.

• Email: shughes@postmedia.com | Twitter: StephHughes95

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