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Coronavirus-led Selloff Takes Reverse Mortgage Rates to New Lows

March 9, 2020
2 mins
Modern seniors working at home

For the first time in Canadian history, reverse mortgages are now widely available under 4%, further reducing the gap with standard mortgage rates and HELOCs.

Equitable Bank, one of two reverse mortgage banks in the country, slashed rates by 0.50 percentage points on Friday. Its move follows the collapse in market rates, triggered by the topic dominating headlines these days: COVID-19.

Equitable’s 1-year lump-sum reverse mortgage is now available for 3.94%, while its 5-year fixed is 4.24%. Unlike its standard equity release product, this one requires you to borrow a single sum all at once.

The bank’s regular 1-year and 5-year fixed rates, which let you spread out your borrowing over time, are 4.24% and 4.84%. Competitor HomeEquity Bank is at 4.99% and 5.29%, respectively.

Dismantling Reverse Mortgage Stereotypes

Reverse mortgage rates are noticeably higher than regular mortgage rates and that’s always been their knock. But consider this. As recently as one year ago, EQ Bank’s 5-year rate was 6.74%. That’s a 200+ basis point drop.

“We are debunking the view that reverse mortgage rates are too high,” Osman Aziz, Manager of Residential Lending Strategy and Analytics at EQ Bank, told Rates.ca. “This may have been the case in years past, but our latest rate drop continues to keep our pricing comparable to HELOC offerings, and considerably lower than many private financing options,” he said.

Senior couple.jpg

Indeed, the lowest reverse mortgage rates are now below most HELOC rates, which average 3.95%. HELOCs, which differ in that they require monthly payments and allow borrowing as needed, are routinely cited as the best credit alternative to a reverse mortgage. The problem is, many seniors who don’t already have a HELOC have difficulty qualifying for one in retirement.

HomeEquity Bank, the other provider of reverse mortgages in Canada, also announced rate reductions last week of up to 0.30 percentage points.

Reverse Mortgage Demand is High

These rate reductions come at a time of record reverse-mortgage growth. Canadian reverse mortgage debt is now at a record $4 billion, up 14% from a year earlier. This growth clip is almost certain to continue, or accelerate, as aging Canadians seek ways to tap the equity they’ve accumulated.

These products might even get a boost from the market sell-off. Using an equity release product can potentially be wiser than selling investments in a bear market. (Speak to your financial advisor to confirm.)

Either way, for people who need liquidity and don’t want to sell their homes, reverse mortgages under 4% present an increasingly persuasive option.

Rob McLister

Rob McLister has been informing mortgage consumers and professionals since 2007. In that time, he’s written more than 2,500 mortgage stories for publications ranging from the Globe and Mail — where he presently serves as mortgage columnist — to the National Post, Maclean’s, Canadian Mortgage Trends and RateSpy.com. Regularly quoted throughout the media, Rob is a committed advocate of greater transparency in the mortgage industry. He’s also been a vocal consumer advocate for more sensible mortgage regulation. In 2011, he launched two mortgage fintechs: mortgage comparison website RateSpy.com and digital mortgage broker intelliMortgage Inc. The former is the go-to source of Canadian mortgage news and the only site comparing all publicly advertised prime mortgage rates. The latter is Canada's leading online mortgage provider for self-directed borrowers. Both companies were acquired in 2019 by RATESDOTCA Group Ltd.

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