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Reverse mortgages are surging in Canada as more older people join the country’s debt bandwagon. If you’re 55 or older, you can borrow as much as 55% of the value of your home. Principal and compound interest don’t have to be paid back until you sell the home or die. To keep the loan in good standing, homeowners only need to pay property tax and insurance, and maintain the home in good repair.
“We’ve only been in this market for 18 months, but applications are jumping,” and have tripled over the past year, Andrew Moor, chief executive officer at Equitable Group Inc., said in an interview. The company, which operates Equitable Bank, sees the reverse mortgage sector expanding by about 25% a year. “Canadians are getting older and there is an opportunity there.”
Outstanding balances on reverse mortgages have more than doubled in less than four years to C$3.12 billion ($2.37 billion), excluding foreign currency amounts, according to June data from the country’s banking regulator. Although they represent less than one percentage point of the C$1.2 trillion of residential mortgages issued by chartered banks, they’re growing at a much faster pace. Reverse mortgages rose 22% in June from the same month a year earlier, versus 4.8% for the total market.
The fact that these niche products are growing so quickly offers a glimpse into how some seniors are becoming part of Canada’s new debt reality. After a decades-long housing boom, the nation has the highest household debt load in the Group of Seven, one reason Bank of Canada Governor Stephen Poloz may be reluctant to join the global monetary-policy easing trend.