As our population ages, a question arises in the senior years – Downsize (rightsize) or look at options to age in place, staying in your home and finding a way to unlock the equity in your home to supplement your income.
It’s a tempting proposition: after years of writing cheques to the bank to pay off your mortgage, the bank will write a nice big cheque for you.
That’s the allure of reverse mortgages, which allow anybody 60 or older to borrow money against the value already built up in their home. With the number of 60-year-olds in Canada expected to double in the next 25 years, demand for the product is expected to grow.
Seeing that as an opportunity, a new provider of reverse mortgages has arrived in Canada, providing some competition to the Vancouver-based Canadian Home Income Plan, which has become almost synonymous with the product over the past 20 years.
Seniors Money Ltd., based in Mississauga, Ont., started selling reverse mortgages in Ontario in 2007. By this past February, it had expanded into every other province except for Quebec, a market it expects to enter later this year or in early 2009.
There are differences between the two competing reverse mortgage products, but the basics are the same. They allow a person or a couple to convert up to 45 per cent of a home’s equity into cash, providing extra money that can come in handy during the retirement years when there’s an absence of a regular income stream.
A homeowner will usually get a lump sum upon opening an account and will make no interest payments, although the products are offering options now to receive the funds in regular instalments and make some payments along the way.
Home equity gradually decreases as the debt load goes up, but the products are designed to leave a homeowner with at least 50 per cent equity at the end of a reverse mortgage, and promise total charges will never be more than the value of the home. Reverse mortgages get repaid when a homeowner dies, the house is sold, or a pre-determined term ends, often set at 10 or 15 years.
Reverse mortgages are still a niche market; CHIP currently has 6,600 of them outstanding in Canada worth over $700 million. But they appear to be catching on with seniors, who are estimated by Statistics Canada to have 77 per cent of their net worth in their home equity. According to Greg Bandler, senior vice-president of sales and marketing for CHIP, the company’s business is now growing by over 20 per cent a year.
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