President & CEO, Equitable Bank
Senior Vice President & Group Head of Personal Banking, Equitable Bank
COVID-19, inflation, and the high cost of living are prompting more Canadians to give reverse mortgages a second look.
Reverse mortgages are gaining popularity among older Canadians. Soaring real estate values, lower interest rates, and inflation are helping to drive this trend — as is COVID-19. In a recent Financial Post article, Andrew Moor, President and CEO at Equitable Bank, noted that the pandemic has caused a shift in attitudes toward retirement among Canada’s aging demographic. “People have really seen the value of living in their own homes versus congregate living settings,” says Moor. This sentiment is reflected in the results of a September 2021 poll, published by Home Care Ontario, of 1,034 Ontarians over the age of 55. Ninety-six percent of the respondents said they plan to live in their home — or age in place — for as long as possible.
A great solution in different circumstances
Reverse mortgages let people cash in the equity in their home for a lump sum of cash or a consistent flow of advances. Long a misunderstood product, reverse mortgages are increasingly seen as a useful financial tool to keep older Canadians in their homes.
In other financial markets, such as the UK and Australia, reverse mortgages are even more popular. The UK market is five times as large as Canada’s when the target demographic is adjusted on a per capita basis.
There are as many options for using reverse mortgages as there are individual situations and circumstances. Seniors with a mortgage-free home, for example, can leverage a reverse mortgage to improve cash flow, leave an early inheritance or gift to their children, or purchase a second home, cottage, or investment property.
Elders still paying off a traditional mortgage or other high-interest debt such as from a credit card or car loan can use a reverse mortgage to ease the debt burden and free up cash. A reverse mortgage can also be used to access capital when a traditional loan or line of credit isn’t an option. “Most traditional credit products require proof that the borrower can service the debt each month, which can be hard for a senior on a fixed income,” says Mahima Poddar, Senior Vice President and Group Head of Personal Banking at Equitable Bank. “With a reverse mortgage, you’re not required to make regular payments.”
Competitive interest rates and more product choice
With more competitive interest rates and more flexibility in how the product can be designed, reverse mortgages have evolved to meet the needs of today’s older Canadians. The terms and types of advances have changed. “Clients can now design a solution to suit them and take their reverse mortgage as a lump sum, flexible recurring advances, ad hoc advances, or a combination, so there’s a lot of flexibility,” says Poddar. That flexibility extends to borrowing amounts, which are between 15 and 59 percent of the home’s value, depending on the client’s age and selected reverse mortgage product. Several post-financial crisis innovations have been added to provide better protection to the customer, including a no negative equity guarantee, ensuring a homeowner never owes more than their home is worth when they meet their mortgage obligations, like paying property taxes and maintaining their home.
After retiring, Sally, 73, found her mortgage and car payments were eating into her cash flow, and her pension wasn’t keeping up with inflation. When her mortgage came up for renewal, Sally started researching her options.
She learned about Equitable Bank and took out a reverse mortgage of $195,000, 30 percent of her home’s $650,000 value. Now with her mortgage and car loan paid off in full, Sally is breathing a sigh of relief. “This really simplifies my life,” she says.