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Taking debt to the grave – reverse mortgages catching on

What can you do if you’re old, not working, and don’t have enough income to make ends meet?

Well, according to the Edmonton Journal, one option – if you are also a homeowner – is the reverse mortgage.

“If you’re 55 or older, you can borrow as much as 55 per cent of the value of your home. Principal and compound interest don’t have to be paid back until you sell the home or die. To keep the loan in good standing, homeowners only need to pay property tax and insurance, and maintain the home in good repair,” the article explains.

In the article, Equitable Bank spokesman Andrew Moor says reverse mortgages are a booming market. “We’ve only been in this market for the past 18 months, but applications are jumping,” he states. Moor tells the Journal that he expects the market will grow by a whopping 25 per cent annually. “Canadians are getting older, and there is an opportunity there,” he states in the report.

The article notes that the explosive growth in reverse mortgages demonstrates “how some seniors are becoming part of Canada’s new debt reality. After a decades-long housing boom, the nation has the highest household debt load in the Group of Seven.”

Critics of the growing sector warn there can be downsides. Reverse mortgages “are a high-cost solution that should only be used as a last resort,” the article says, quoting industry experts who worry about the practice.

“When they think of their cash flow, they’re not going to get kicked out of their house, but in reality, it really has the ability to erode the asset of the borrower,” states Shawn Stillman of the Mortgage Outlet in the Journal article.

Another thing that can happen is that your home may continue to appreciate in value during the period of the reverse mortgage – so you will miss out on growth, the article states.

The sector has grown to an incredible $3.12 billion, the article notes. That’s more than double what the balance was on reverse mortgages just four years ago, the story reports. And while reverse mortgages are a relatively small sliver of the overall $12 trillion Canadian residential mortgage pie, the reverse mortgage share is up 22 per cent in the last year, the article reports.

Let’s think of what this means in the overall retirement savings picture. Canadians are grappling with high debt, largely caused by the high price of housing. This debt is a savings restrictor – there often isn’t money left over to put away for retirement. Good workplace retirement plans are scarce. So we shouldn’t be surprised to see some folks, unable to make ends meet on government retirement benefits, having to cash in the value of their homes.

The reverse mortgage trend underlines the need we all have to save for retirement on our own – whether or not we have benefits for retirement via work. The cost of living rarely, if ever, goes down, so money tucked away today and invested over time will be very handy in your costly future. An easy way to get going on retirement savings is through membership in the Saskatchewan Pension Plan. It’s open to all Canadians, and offers low-cost, professional investing to grow your money, and a full-service annuity program to convert those savings into retirement income once you’ve slipped the bonds of work. You owe it to your future self to check them out today.

Written by Martin Biefer
	Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22