More Seniors to Rely on Home Equity as Part of Retirement Planning

Almost 8 in 10 Canadians over the age of 55 believe they can’t rely on registered savings and pension plans alone to support a comfortable retirement.

Roughly half say that home equity is a vital part of retirement planning, yet many don’t want to downsize from their current home, according to an Ipsos survey commissioned by HomeEquity Bank.

For those unwilling to sell their home to access that liquidity, that leaves reverse mortgages and potentially home equity lines of credit as the most likely sources of equity take-out during retirement.

That’s why HomeEquity Bank, one of two providers of reverse mortgages in Canada, has launched a new national campaign to raise awareness that older Canadians don’t necessarily want to sell and downsize their home, despite 76% of them saying their demographic feels pressure to do so.

“Downsizing isn’t as attractive as it used to be,” said HomeEquity Bank President and CEO Steven Ranson. “Given the amount of risk associated with moving and finding another suitable home, more than a quarter of older homeowners are considering accessing the equity in their homes instead of selling to help fund their retirements.”

A survey from the National Institute on Aging reported similar findings, with nine out of 10 Canadians saying they want to stay in their homes as long as possible in their golden years.

The Retirement Income Gap

Looking at the average base income Canadian seniors can expect in retirement, it’s easy to see why a growing number are open to tapping into their home equity as a supplement.

Seniors derive income in retirement through three primary sources. Those are:

• Canadian Pension Plan (CPP): The average amount for a 65-year-old as of January 2021 was $736.58.
• Old Age Security (OAS): The average amount reported by the Government of Canada was $618.45.
• Retirement Savings Withdrawals (RRSP): A BMO study found that the average RRSP balance for Baby Boomers (those 57 to 75 years old) was $178,664.

All told, the above works out to roughly $2,100 per month in retirement income.

Reverse Mortgages Continue to See Strong Growth

Rapidly rising home values have been a boon to seniors who are considering a reverse mortgage, which in turn has helped fuel reverse mortgage growth.

In 2020, Canadian seniors added $408 million in new reverse mortgage debt, bringing the total reverse mortgage debt outstanding to $4.42 billion, according to data from the Office of the Superintendent of Financial Institutions.

That’s up 12.5% from the year before and a whopping 367% jump from $898.5 million in 2011.

Equitable Bank, the other reverse mortgage provider in Canada, reported volume growth in Q1 2021 of +44% from the previous quarter and +241% year-over-year.

“Demand for the Bank’s reverse mortgage products accelerated due to low interest rates, record property values and a strong preference for aging in place and is expected to further increase as the Canadian market is under-served compared to international benchmarks…,” the company said in its earnings release.