Reverse mortgage growth has been phenomenal in Canada. And it’s been that way for years, particularly since rates started plummeting.
The trend will only continue with a growing cohort now approaching retirement with insufficient savings. Here are some stats that surprised even us.
The most recent data from the 2016 Census found that nearly half (45%) of Ontario’s homeowners were already at or nearing retirement.
The overwhelming majority (88%) have less than $200,000 in savings, says HomeEquity Bank citing StatsCan data. Most of their wealth is tied up in real estate and two-thirds live off only CPP and Old Age Security.
When those savings run out and social insurance no longer gets homeowners by, reverse mortgages start looking a lot more appealing. They may not be the first choice for most, but they’re the choice of last resort for many.
Many Canadians without private/employer pensions aren’t as financially prepared for retirement as they should be. It’s concerning that a growing number of seniors (1 in 5) are now carrying mortgages into retirement.
Indeed, more than half (56%) of Canada’s pre-retirees aged 50+ don’t have a plan for retirement, according to a poll conducted for the Ontario Securities Commission in 2016.
And if you want other concerning stats, here’s more:
When relying strictly on CPP and OAS, people have good reason to worry about outliving their savings, or making big lifestyle sacrifices.
For those with $200,000 in savings and planning to withdraw $20,000 per year, (based on a 4% rate of return and 2% inflation), that nest egg could be expected to last for roughly 11 years, not including government income (see calculator).
Reverse mortgages buy seniors time, the most valuable thing they’ve got besides their health.
While many would hope to leave their property to their children, the reality is that more seniors will have to rely on reverse mortgages to bankroll their retirement years.
In 2020, the value of reverse mortgages in Canada soared to over $4.4 billion, a 12.55% increase compared to a year earlier, according to data from the Office of the Superintendent of Financial Institutions. That’s easily the fastest-growing mortgage segment.
Fuelling that growth is falling interest rates. Reverse mortgages can now be found as low as 3.79%, in the case of Equitable Bank’s 5-year fixed lump-sum product.
If there’s one thing we’d warn people about, it’s this. If you’re banking on home equity to get you through your golden years, don’t be among the 1 in 5 who still have a mortgage past 65. Otherwise, most or all of your reverse mortgage proceeds may go towards paying off your debt.
What is a reverse mortgage? In simple terms, a reverse mortgage is a loan that lets those aged 55+ pull tax-free cash from their home equity. Funds are withdrawn in instalments or lump-sum payments, and no payment is required until the homeowner sells the home or dies. For more details, see our comprehensive explainer on how reverse mortgages work.