It appears that cash-strapped Canadian baby boomers are increasingly borrowing against their home equity, pushing the value of reverse mortgage debt to a record high, according to the Office of the Superintendent of Financial Institutions (OSFI).
The overall reverse mortgage value hit $3.83bn in August, 1.33% higher from the month before. On an annual basis, this represents a growth of 26.33%.
"The increase puts the balance at a new record high, with a very, very fast growth rate. The growth rate is levelling out, but at a very high level," said market watcher Daniel Wong in an analysis in Better Dwelling.
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Reverse mortgages provide an opportunity for seniors to access the equity they have built in their home. Reverse mortgage borrowers can receive their loan in a lump sum or regular payments.
Over the month, seniors borrowed $50.63m, while over the year to August, reverse mortgage borrowing ballooned to $706.11m. Wong said the rate at which reverse mortgages are growing seems to be starting to level out.
"Although, it is levelling out at a high rate of growth. It's quite possibly the fastest-growing segment of debt in the country. Considering the high-interest rate, and lack of urgency to pay it off – this will likely persist for a while," he said.
Reverse mortgages do not have a regular repayment schedule. Wong said borrowers typically have to pay their mortgage back at the time of death, default, or sale.
"Meanwhile, interest quietly racks up in the background, eating away at your equity," he said.