Reverse Mortgage Debt Likely to Slow Down After Reaching Record High

The OSFI (Office of the Superintendent of Financial Institutions) has presented data proving that while reverse mortgage debt hit its a peak in August, there is actually drastic slow down compared to earlier this year. What does this mean for senior homeowners in Canada dealing with the continual decrease in their home equity?

Breaking Down Reverse Mortgage Debt

Specific banks allow seniors to withdraw a select amount of home equity in lump sums or installments. Specifically, this is ideal for Baby Boomers who are house-rich and cash-poor, so they can keep their current home without dealing with the financial brunt of payments on the withdrawn equity.

Since reverse mortgages are a more expensive version of a home equity line of credit (HELOC), rates are higher and nearly impossible to pay off for seniors on fixed incomes. And when they fail to pay off the reverse mortgage, the equity will disappear over time at a far higher rate.

Unfortunately, there won’t be much to leave in your will for your family but it’ll help you live your remaining years in relative comfort.

Reverse Mortgages Responsible for New Debt Record

Canadian homeowners over 65 increased national reverse mortgage debt by $40 million in August, up to $3.03 billion, a new national high. It’s a 1.35% monthly jump with a yearly rise of 42.32% compared to last year.

Could Debt Growth Level Off?

It seems, to the benefit of senior Canadians and to the chagrin of reverse mortgage salespeople, that debt growth may be calming down. Although the 42.32% annual growth is astronomical, it’s actually down from the 46.32% of February this year and is the fourth straight month of showing a slowdown, and sixth straight month of trending downwards.

Hope for Sinking Debt Rates?

While the debt isn’t growing quite as fast as it once was, it won’t be going away or going negative. Seniors are on fixed incomes and unable to pay the entirety of their debt off, meaning it’ll continually compile into a bigger and bigger liability over time. Until seniors pass away, the interest will keep trending upwards, and their equity will keep vanishing into the abyss.