Canadian 55+ Facing a Double Edged Sword

Canadian 55+ have been hit with a double-edged sword – rising interest rates combined with soaring prices of groceries and energy, has eroded purchasing power as pensions grossly lag inflation. Stats Canada reported a slight drop on inflation in September to 6.9% from 7.0% in August, which has paved the way for another interest rate hike.

Key stats:

• Groceries are up 11.4% year-over-year, the fastest increase since 1981
• Recent weakening of the Canadian dollar could continue to drive up grocery prices
• Expected increases in energy costs due to the Russian invasion of Ukraine
• Since March, the Bank of Canada has raised rates from 0.25% to 3.75%
• Economists are also predicting another rate increase of 0.50% in December

How this affects Canadian homeowners 55+:

When world events happen at a rapid pace, seemingly all at once (war, price increases, rate increase), Canadians 55+ tend to “freeze-up and do nothing”. Psychologists have identified “Certainty” as one of the “Six Human Needs”. When life becomes uncertain, older homeowners live in fear, and their brain adapts by numbing it in one of two ways:

1. Settling – These homeowners will tighten their belts and settle for a retirement that’s less than they deserve. Going without eating properly, not travelling, not getting out because it’s too expensive for gas.
2. Procrastinating – Putting off decisions until “tomorrow”, or “when I have more time” is a classic delay tactic of a homeowner 55+ living in fear. Instead of addressing high interest credit card debt, they’ll wait until collection notices start piling up.

How you can help:

Being a financial expert gives you the privilege of being able to truly make a difference in the lives of your 55+ clients. They’re not going to come into your office and outright tell you they’re struggling financially; most are far too proud to do this. But you can watch for subtle clues, small talk such as “gas prices are going up again on Friday”, or “got another property tax bill to pay this month”, or “boy those credit card companies really stick it to you” are all tiny red flags where you can have a broader conversation about their current financial situation.

Bottom line:

The Ryerson Institute for Aging did a study and found that 93% of Canadians 55+ don’t want to sell their homes, preferring to age in place. House prices have increased by an average of 5.6% per year since 1982, creating many “house-rich” yet “cash-poor” 55+ homeowners. We have options to help these clients.

• Roland Mackintosh

 

Reverse Mortgages in Canada are on the rise as aging baby boomers start to retire. Covid-19 helped accelerate some seniors to get reverse mortgages sooner, however, this trend has been growing for years. Going forward the next ten years will bring substantial growth as it increases in popularity.

Not sure what a Reverse Mortgage is? Click on this link to learn more or download our FREE PDF Guide.

While you can use your Reverse Mortgage funds any way you want, here are the most common five reasons.

Reverse Mortgage Reason One – Debt

Growing older, we think carefully about the type of lifestyles we want to live as we head into our senior years. Most want no debt and, in many cases, high-interest-rate loans like credit cards and similar have built up and people want them paid off.

Using a Reverse Mortgage to pay off high-interest loans and consolidating debt is an excellent way to use a Reverse Mortgage.

In many cases, once the high-interest debt is paid out, there are no more monthly payments! That is the beauty of a Reverse Mortgage.

Home Equity Bank states 59% of their Reverse Mortgage customers use it to reduce or remove debt.

Reverse Mortgage Reason Two – Health Care Related

As most Canadians know, although our health care system is one of the highest-rated in the world, there are still many expenses not covered. That could be expensive electric walk-out chairs, wheelchairs, wheelchair ramps, vehicles, personal support workers, and much more.

Home Equity Bank states 40% of their Reverse Mortgage customers use it for health care expenses.

Reverse Mortgage Reason Three – Home Renovations

Millions of Canadians have lived in their homes for many years, seen their children grow up and leave for college or getting married and having children themselves. Or in many cases aging parents need more support from family, leading to the need for a living suite.

As those life events evolve us, our homes need to evolve too. That could mean renovations in the yard, where there is less grass to cut and less yard maintenance.

Some renovate to create a legal suite to rent out for extra monthly revenue.

How about a new garage? Perhaps Dad or Mom is really into motorcycles or cars and wants to tinker in their retirement in the newly renovated garage.

How about a brand-new deck? Relaxing in your own backyard can be a wonderful way to enjoy retirement.

Your home may simply be aging and needs a new roof, painting, new gutters, and more. Canadians do not want to compromise their lifestyle in their own households.

Home Equity Bank states 27% of their Reverse Mortgage customers use it for renovations.

Reverse Mortgage Reason Four – Income Supplement

You can choose to have installments of your Reverse Mortgage funds versus one large payment. In these cases, it is based on people that want to supplement their incomes. Whether there is not enough in retirement savings, CPP or pension, reasons vary.

Lifestyle is a common reason for income supplement, especially after retirement.

Home Equity Bank states 25% of their Reverse Mortgage customers use it to supplement their income.

Reverse Mortgage Reason Five – Living Expenses

It seems every time you go to the grocery store, food prices are up. You go get gas and depending on where you live in Canada your gouged based on the day’s trading value. A new car? Increasing by 10K a year it seems, and the maintenance costs are not going down anytime soon.

These types of living expense increases cause huge amounts of stress on our seniors that deserve to live out their remaining years in dignity.

Further to the use of funds, Home Equity Bank also conducted a study with Deloitte about Senior Canadians in debt in May 2014. The study revealed that within the senior demographic (Canadians 55+), 21% (1.4 million seniors) had a financial need and within this group, 13% (845,000) were actively considering options such as reverse mortgages in Canada. There are 4 main categories of seniors who have this financial need.

Those who:

• “Need to alleviate the stress of debt.”

These customers are very aware of their debt situation and are stressed over the burden of their finances.

• “Need to pay for an unplanned expense.”

These customers had a sudden emergency such as health or house related (leaky roof, flood, etc.) and did not set aside extra money for “just in case”.

• “Want to improve my lifestyle.”

These customers want to incorporate travel, dining out, or even entertainment to improve their lifestyle.

• “Need to maintain my standard of living.”

These customers may have been middle to high-income earners before retirement and are having difficulty sustaining their lifestyle post-retirement.

Although the above 4 categories include the majority of Canadian seniors interested in a reverse mortgage, there are seniors who take out a reverse mortgage for other (less frequent) reasons such as helping family members with an early inheritance, using it as a purchase mortgage, and for investment purposes.

Home Equity Bank states 18% of their Reverse Mortgage customers use it for living expenses.

Take the Next Step – Apply for a Reverse Mortgage Now

Got a question? Just ask. Whatever your reason, it does not matter, Arrowsmith Mortgage is here to help you through every step so you in turn can enjoy the lifestyle you earned!

Apply here.

 

It’s no secret that interest rates on reverse mortgages are higher than what you can expect to pay on conventional mortgages – and there’s valid reasoning behind this reality.

The most significant cause for higher interest rates is that the loan requires no monthly mortgage payments, not even interest payments. This can definitely be a worthwhile trade-off to make in order to secure a mortgage that requires zero payments, as no other home loan offers this kind of flexibility.

In recent years, fixed reverse mortgage interest rates have continued to fall within the 5-6% range, which definitely makes for an affordable choice. And much like a traditional mortgage, variable-rate options are also available. Click here for a helpful reverse mortgage calculator to see how much money you may be eligible to receive.

Keep in mind that you can also choose to make payments on your loan – even interest-only payments – at any time.

Never owe more than your home is worth

As an added safeguard to a Home Equity Bank reverse mortgage, unlike most traditional mortgages in Canada, this product comes equipped with a negative equity guarantee. This means that if the loan amount due is more than the sale amount of the property, Home Equity Bank will cover the difference between the sale price and the loan amount (provided the homeowner has paid their home insurance, property tax and maintained the property in good condition). If these conditions are met, then the homeowners or their beneficiaries will never owe more than the fair market value of the home at the time it’s sold.

As a Certified Reverse Mortgage Specialist, it’s my job to understand and support the growing needs of seniors to determine if a reverse mortgage is right for you or your loved ones. Click here to access our convenient online application. Have questions? Answers are just a call or email away!