More Canadians seek reverse mortgages to sustain their living
It’s a tough time for retired Canadians. Soaring inflation is making it difficult for those on a fixed income to maintain their standard of living. According to Angus Reid, with increased costs for everything from groceries to energy bills, three-quarters of Canadians say they are stressed about money, and more than half say they can’t keep pace with inflation.
Almost 70% of Canadians own their own homes, according to Remax. Although home prices have tumbled this year, many older Canadians purchased their homes during the past few decades of record-low interest rates and have benefited from substantial price appreciation.
Reverse mortgages are seeing a surge in popularity as more Canadians seek good retirement and supplement their income amid the ongoing affordability crisis.
HomeEquity Bank, Canada’s largest reverse mortgage provider, reported that in 2022, it had issued over $1 billion dollars in reverse mortgages, which is up 30 per cent from 2021.
“A lot of people who are retired fall into a position where they’re house rich and cash poor. So especially if they don’t have any sort of defined pension plan or if they haven’t invested heavily in RRSP, that’s the time to apply a reverse mortgage in handy,” Toronto-based mortgage broker Mary Sialtsis said.
Sialtsis says the rise in Canadians seeking reverse mortgages is unsurprising, especially after the horror stories coming out of long-term care homes with COVID-19.
“A lot of seniors are rethinking their plans about aging in place rather than going into retirement facilities,” she said. “Some of them do need help with assistance while they’re living, and they can’t afford it. So a reverse mortgage is a great option.”
Reverse mortgages operate similarly to a home equity line of credit. Canadians 55 or older who own a paid-off home can borrow against their home equity to supplement their pension earnings, while being able to continue living in their own home.
“I have several clients that have used it, who are retired and they don’t have private pensions, they’re only earning CPP, and OAS which really doesn’t give them a lot of money,” Sialtsis said. “They want to kind of supplement their lifestyles, so they’ll take a reverse mortgage.”
Unlike typical mortgages or lines of credit, reverse mortgage recipients don’t need to pay back the money until both of the homeowners die, move out or sell their house.
Even if one homeowner moves to a retirement facility, the other can continue to live in their home and receive the reverse mortgage. If both homeowners die, their estate would have to pay back the mortgage within 180 days, which is typically done by selling the house.
There are also limits as to how much you can borrow against your home.
“The most you can borrow against the value of your home is 55 per cent. What’s important to note is that the percentage that you can borrow from the home is based on how old you are. So somebody who is 57 might only be able to access about 20 per cent of the value of the home,” Sialtsis explained.
But no matter how much you borrow against your home, you will never lose ownership of your home with a reverse mortgage.
“The owners never lose ownership of the home. That is the key. They always stayed as home owners and it is simply a mortgage that they’re getting,” said Sialtsis.
A home equity line of credit (HELOC) is another way for homeowners to tap into the equity they’ve built in their homes. HELOC lenders typically allow homeowners to access up to 80% of the equity in their homes and make minimum monthly payments. The challenge for retirees who lack a regular income is two-fold when it comes to lines of credit. One is that, like credit cards, HELOC debt is revolving and can grow significantly without a regular payment plan. The other is that HELOC rates are tied to the Bank of Canada’s Prime rate, which continues to rise at a fast pace.
Part of the article was reported by CTV News.