Source: The Globe and Mail —
Reverse mortgages have always been a controversial financial product, but that hasn’t stopped their expansion in Canada or from becoming a growing source of interest among advisors as a potential recommendation for certain clients.
A reverse mortgage allows homeowners aged 55 or older to borrow against their properties without making payments against the loan until it comes due – usually when the owner sells or dies. The product draws criticism largely because it typically carries higher interest rates than conventional mortgages.
Toronto-based HomeEquity Bank, the provider of the CHIP Reverse Mortgage, recently reported more than $1-billion in reverse mortgage originations for 2022, a 30-per-cent increase from 2021. That brings its total reverse mortgage portfolio under management to about $6.3-billon. The growth is despite a rapid rise in interest rates as more baby boomers look to stay in their homes and manage rising costs.
Last autumn, HomeEquity Bank brought on investment industry veteran Jeff Thorsteinson as vice-president, wealth distribution, to help grow its advisory channel. The Globe spoke with him recently about the growth in reverse mortgages and the company’s advisor strategy:
What has driven the growth of your business?
It’s dominantly demographics. More baby boomers are retiring, and many are house-rich and cash-poor. They have a need for income – and high inflation isn’t helping. So, more people realize that [their home] is an asset class they can tap into. Also, most want to stay in their homes as they get older.
The higher interest-rate environment didn’t appear to be a deterrent to your company’s growth last year.
People are concerned about all rates. Historically, our rates have been 2 to 3 percentage points more than conventional rates, but that spread is tightening. We’re about 150 or so basis points higher than a conventional five-year mortgage today. … And as we grow and become more mainstream, that spread’s going to tighten. That will only help people start to think this is a very economically viable option. We had a great amount of interest last year, but some people are waiting to see what’s happening with interest rates and if they come down.
Why has HomeEquity Bank decided to focus on the advisor network?
