Baby Boomers, Equitable Bank, Reverse Mortgages

Baby Boomers, Equitable Bank

Don’t-pay-til-you-die reverse mortgages are booming in Canada as seniors binge on debt

Don't-pay-til-you-die reverse mortgages are booming in Canada as seniors binge on debt

2019-09-16 4:22:00 PM

Don't-pay-til-you-die reverse mortgages are booming in Canada as seniors binge on debt

Already carrying debt, many seniors can’t downsize because they can’t afford high rents, so turn to reverse mortgages for a new source of income

If you’re 55 or older, you can borrow as much as 55 per cent of the value of your home. Principal and compound interest don’t have to be paid back until you sell the home or die. To keep the loan in good standing, homeowners only need to pay property tax and insurance, and maintain the home in good repair.

'It's not just about me': McKenna says new measures needed protect politicians from threats U.K.'s first physically distanced concert shows what the future of live music might look like More than 500 people may have been exposed to COVID-19 at Toronto strip club

“We’ve only been in this market for 18 months, but applications are jumping,” and have tripled over the past year, Andrew Moor, chief executive officer at Equitable Group Inc., said in an interview. The company, which operates Equitable Bank, sees the reverse mortgage sector expanding by about 25 per cent a year. “Canadians are getting older and there is an opportunity there.”

Outstanding balances on reverse mortgages have more than doubled in less than four years to $3.12 billion (US$2.37 billion), excluding foreign currency amounts, according to June data from the country’s banking regulator. Although they represent less than one percentage point of the $1.2 trillion of residential mortgages issued by chartered banks, they’re growing at a much faster pace. Reverse mortgages rose 22 per cent in June from the same month a year earlier, versus 4.8 per cent for the total market.

The fact that these niche products are growing so quickly offers a glimpse into how some seniors are becoming part of Canada’s new debt reality. After a decades-long housing boom, the nation has the highest household debt load in the Group of Seven, one reason Bank of Canada Governor Stephen Poloz may be reluctant to join the global monetary-policy easing trend.

More seniors are entering retirement with debt and the cost of rent has shot up in many cities, making downsizing difficult amid hot real estate markets. Reverse mortgages offer a new source of income.Canada’s big five banks have so far shied away from the product. Only two lenders offer them in Canada. HomeEquity Bank, whose reverse mortgage has been on the market for 30 years, dominates the space with $3.11 billion on its books. Equitable Bank, a relatively new player, has $10.1 million. Shares in parent Equitable Group have surged 75 per cent to a record this year.

Critics say reverse mortgages are a high-cost solution that should only be used as a last resort.“When they think of their cash flow, they’re not going to get kicked out of their house, but in reality, it really has the ability to erode the asset of the borrower,” Shawn Stillman, a broker at Mortgage Outlet, said by phone from Toronto.

Higher RatesInterest rates are typically much higher than those for conventional mortgages. For example, HomeEquity Bank and Equitable Bank charge 5.74 per cent for a five-year fixed mortgage. Conventional five-year fixed mortgages are currently being offered online for as low as 2.4 per cent.

WE lobbied government 43 times in months leading up to cancellation of $543 million volunteer grant program deal Mail-in ballots sent to Trump, U.S. First Lady in Florida Harris bringing energy, dollars and more to Biden's campaign

Atul Chandra, chief financial officer at HomeEquity Bank, said the higher rates are justified because the lender doesn’t receive any payments over the course of the loan.“Our time horizon for getting the cash is much longer, and generally the longer you wait for your cash to come back to you, the more you need to charge,” Chandra said in a telephone interview.

Most DelinquentExecutives at HomeEquity Bank and Equitable say they are focusing on educating people about reverse mortgages to avoid mistakes that were made in the U.S. during the housing crisis — including aggressive sales tactics.While delinquency rates on regular mortgages are still low for seniors, they were the highest among all age groups in the first quarter, at 0.36 per cent, according to data from the federal housing agency. The 65-plus demographic took over as the most delinquent group at the end of 2015. For non-mortgage debt, delinquency rates in the 65-plus category have seen the biggest increases over the past several quarters, Equifax data show.

Reverse mortgages aren’t included in typical delinquency rate measures — borrowers can’t be late on payments because there are no payments — but they can be in default if they fail to pay taxes or insurance, or let the home fall into disrepair. However default rates for reverse mortgages have remained stable, even with the strong growth in volumes, said HomeEquity’s Chandra.

According to a scenario provided by HomeEquity Bank, a borrower who took out a reverse mortgage of $150,000 at an interest rate of 5.74 per cent would owe $199,058 five years later. A home worth $750,000 when the reverse mortgage was taken out would be worth $869,456 five years later, assuming 3 per cent annual home price appreciation, meaning total equity would have grown by about $70,000.

Read more: National Post »

I don’t see why we should leave anything to these young people anyway. Theyd just waste it on avocados and iPhones The real cause of problems here in Canada. And then they vote conservative to try to save a couple of bucks in taxes while draining the healthcare system

People's Party of Canada Leader Maxime Bernier explains his party's election platformPeople's Party of Canada Leader Maxime Bernier explains his party's election platform. justanother socialist ... Let's be honest. Does any one really care? PPC_Retweets MaximeBernier

Globe editorial: Issues dear to Canada are at the heart of the Democratic candidates’ debatesHealth care and gun control are two key topics on the table for those jousting to fight Donald Trump in the 2020 U.S. presidential election. most of those Democrats can’t even vote in Canada fyi

Taylor Pendrith earns second Canada Life Canadian Player of the Year honours - TSN.caFor the second time in four years, Taylor Pendrith earned Canada Life Canadian Player of the Year honours on the Mackenzie Tour – PGA TOUR Canada.

NDP’s Singh vows auto industry revival with focus on spending in CanadaSingh promised to resurrect a $300-million automotive innovation strategy to encourage the development of zero-emission vehicles, but with a catch: manufacturers and auto-parts suppliers would be required to invest in keeping jobs on Canadian soil. Does he know about that agreement with USA? cdnpoli idiot! Good luck with that the unions already pushed out any auto investment!! It's all fantasy, as NDP will never win in Ottawa. Singh can promise the moon if he wants to!

Day 4: Party leaders travel across Canada to win over votersParty leaders travel across Canada to win over voters on the first official weekend of the Federal Election. These arent leaders, these are installed puppets. Where Bernier and Tim Moen? We are sick of hate-keeping. I even signed a portion to put Elizabeth May in the debates and I don’t even support her at this time. But she deserved to be heard. Canada needs REAL options. Establishment politics and media are hurting Canada. Can I vote for William Shatner?

Patrick Fishburn takes two-stroke lead into final round of the Canada Life Championship - TSN.caMaking five birdies and an eagle on Saturday at Highland Country Club, Patrick Fishburn posted a third-round 64 to take a two-stroke lead over Jeremy Paul into the final round of the Canada Life Championship, the final event on the Mackenzie Tour – PGA TOUR Canada schedule.