More than nine out of 10 Canadians want to stay in their homes as long as possible in their golden years, according to a recent survey from the National Institute on Aging. And now, Equitable Bank offers a new option to make that possible.
Last week, the alternative lender increased the amount of equity that can be accessed via its reverse mortgage. Called Reverse Mortgage Flex, Equitable now lets older homeowners tap up to 55% of their home’s value, from 40% previously.
Equitable’s new loan-to-value maximum matches its competitor HomeEquity Bank’s long-standing policy. The difference is, Equitable has lower reverse mortgage rates, slightly lower fees and a cheaper early payment penalty.
Equitable Bank says its new feature can help those wanting to maintain their personal space during the pandemic and avoid higher density living environments such as retirement homes.
Canadians of all ages plan to live independently in their own home for as long as they can, according to the above survey. For those 65 and older, the percentage jumps to 100%.
“We're seeing first-hand that Canadians want access to more of their home equity to finance their aging-in-place plans,” Paul von Martels, Vice-President of Reverse Mortgage Lending at Equitable Bank, said.
He says the typical approach of selling one's home to fund later-in-life needs is “becoming an inferior option.”
Reverse mortgage recap
Reverse mortgages are booming in popularity as the country’s population steadily ages. Reverse mortgage debt reached $4.3 billion as of July 2020, a 14% increase from a year earlier and more than a 460% jump over the past decade.
That growth is expected to continue given demographic projections. As of 2019, 17% of the population was 65 or older. That number is expected to jump past 20% by 2026 and up to 26% by 2050.
With well over half of Canadians (62%) worried about outliving their retirement savings, many are turning to reverse mortgages to stay in their homes and supplement their living expenses.
Here’s a rundown of how Equitable Bank’s Reverse Mortgage Flex product compares with its line of “Lump Sum” reverse mortgages and competitor HomeEquity’s CHIP products.
- Maximum loan-to-value (how much of the home’s value can be withdrawn):
- Equitable Flex: 55%, depending on age, location and property type
- Equitable’s “lump sum”: up to 40%
- HomeEquity CHIP: up to 55%
- Provinces served:
- Equitable: Alberta, B.C., Ontario and Quebec
- HomeEquity Bank: National
- Equitable at 55% LTV: 50-90 basis points higher than Equitable’s “lump sum” rates at 40% LTV
- HomeEquity at 55% LTV: 20 basis points higher than Equitable’s highest rates (as of the date this is being written)
Note: Like HomeEquity Bank, Equitable charges higher rates at renewal on its Flex product (up to 30+ bps higher). That’s not just a money grab. It’s due to higher LTVs triggering higher regulatory capital requirements and, therefore, higher costs, Von Martels tells us. This premium at renewal does not apply to Equitable’s “lump sum” products, where the borrower receives all of the funds upfront.
Is it Worth It?
While not all borrowers need to access an extra 15% of home equity, there’s a big contingent that will welcome the Reverse Mortgage Flex. That’s because most reverse mortgage borrowers request the maximum they can qualify for.
As Equitable notes, the LTV increase “allows for a renewed focus on homeowners' priorities: like paying off debt, covering everyday expenses, making renovations, and supporting family—all while retaining ownership and use of their home.”
For those who need regular care, access to extra equity means they can stay in their home longer. And homecare costs just keep growing. A personal support worker for just six hours a day can run $65,000 a year. At that rate, with the average home now worth $607,000, an extra 15% loan-to-value can mean another year and a half of in-home care.
If your alternative is a seniors living centre, life under your own roof offers priceless freedom and independence. And given the pandemic, potentially more safety.