“I can understand why many homeowners would be attracted to this type of finance as it’s a fixed rate compared to a HELOC, and it’s a way of getting cash quickly if you are going through a financial patch, but it’s not ideal, especially if you want to sell in the future,” Marc Abramovitz from Northwood Mortgage and founder of ilovemymortgage.ca told MortgageBrokerNews.ca in early April. “There are a lot of other options available and homeowners really need to do a lot of due diligence and get independent advice before signing up for this.”
Reverse mortgages have been available since the introduction of the Canadian Home Income Plan in the mid-1980s, though very few financial lenders have openly offered the product. However, with an aging population and dependent children needing help with down payments, there has been a report of rising interest in this financial method.
“I am seeing a lot more use and interest in reverse mortgages, especially for those who are in difficult situations,” Abramovitz said. “For example, one my clients had no mortgage on her home, and needed cash to reinvest back in her house. Her only other was to sell the property so a reverse mortgage was the best solution.”
HomeEquity plans on issuing 3,000 reverse mortgages in 2014, according to the National Post.
According to CARP, a national not-for-profit organization committed to a “new vision of aging for Canada,” 12 million working Canadians (two-thirds of the workforce) do not have workplace pension plans and RRSPs have “not been the answer” to retirement security.
And while many brokers are apprehensive about reverse mortgages, one leading player points to stats that prove homeowners who take advantage of this type of product are doing so without sacrificing a great deal of their equity.
“After 28 years -- and through one of the worst financial crises we’ve seen in Canada -- in most cases at the time of sale our clients have an average of 50 per cent of the equity left in their homes,” Jeff Spencer, VP of National Sales for HomEquity
Bank said in an official media release at the end of May.
Reverse mortgages are up 26 per cent year-to-date, according to HomeEquity Bank; which dredges up an ongoing debate about the value of such a product.