By: Paul von Martels, Vice President Prime and Reverse Mortgage Lending, Equitable Bank
More often, Canadians are choosing to age in place. In fact, 86% of surveyed Canadian boomers resist the idea of moving to a care facility or even to downsizing, preferring to stay in their homes for as long as possible 1. Given this desire and the importance home equity plays in retirement planning, financial advisors are engaging in discussions with their clients earlier about optimal ways to finance this lifestyle decision.
Equitable Bank is supporting clients in this regard through its Reverse Mortgage solution. By accessing a portion of home equity, all at once or through regular advances, Canadians are bridging cash flow needs and enabling tax, government program participation and investment portfolio optimization. Home Equity Lines of Credit (HELOCs) have traditionally been the solution of choice, however for many seniors, the income qualification requirements prove difficult and certain conditions could be problematic. For example, HELOCs can be called by the lender at any time, interest payments must be made monthly, and finally, borrowers are responsible for situations where the HELOC balance exceeds the value of the mortgaged property. Reverse mortgages are designed intentionally to address these limitations. The key HELOC advantage is its cost; with rates at Prime + 50 bps3 and the ability to repay at no cost, HELOCs can be quite cost efficient. To make reverse mortgages more accessible, Equitable Bank has challenged the norm, offering very competitive rates; for example, a 1 year fixed Lump Sum Reverse Mortgage carries an annual rate of 3.94%2 vs. 2.95% on a HELOC3.
The reverse mortgage narrative is changing. The product is better, the rates lower, and more than ever, it serves a critical financial planning need – aging in place. Equitable Bank’s Decumulation lending products are unique, helping clients access equity in unique and low-cost ways.
Below are three common borrower uses:
- Income Supplement
- Debt Refinancing
- Purchasing a New Property
Clients facing cash flow shortfalls can elect to schedule regular advances from their reverse mortgage, similar to an annuity. This helps with budgeting, better manages interest accumulation, and is often coordinated with a delayed draw-down of an investment portfolio. It’s common that clients take a one-time draw upfront to help pay off higher cost debt or to make some basic home improvements and with the remaining credit limit, schedule regular payments over 5 to 10 years. Should something unexpected occur in your client’s life requiring them to cancel future payments and take all remaining funds as an ad-hoc draw, that’s fine too.
Reverse mortgages are often used as an effective refinancing solution – to payout mortgages requiring regular payments, and/or higher interest-bearing loans like credit cards and private mortgages. For those with no clear repayment path or those simply struggling to make their payments, reverse mortgages can provide (critical) breathing room.
Although less common, borrowers can use funds to purchase a new property, most often to finance the purchase of a smaller home that’s more suitable to aging-in-place. The mortgage can be timed with the purchase, reducing the initial capital outlay.
You can learn more about the Equitable Bank Reverse Mortgage product on our website https://www.equitablebank.ca/residential/reverse-mortgage, or speak with us at reversemortgage@eqbank.ca
About Equitable Group Inc.
Equitable Bank manages over $33 billion in assets and is a wholly-owned subsidiary of Equitable Group Inc. It was founded in 1970 as The Equitable Trust Company and has become Canada’s ninth largest Schedule I bank. Equitable Bank offers a diverse suite of decumulation lending, residential lending, commercial lending, and savings solutions, including high interest savings products and GICs. Through its Decumulation lending suite, Equitable Bank offers innovative credit solutions which unlock real estate equity and cash surrender value equity that has traditionally been difficult or impractical to access