This third article from our reverse mortgage in Canada series will discuss the use of reverse mortgage funds. What are Canadian reverse mortgage clients using their funds for?
Your reverse mortgage loan is your money and thus your choice to choose how you want to spend it. However, among the many reasons for Canadian reverse mortgage funds, HomeEquity Bank lists the most common reported use of funds by percentage (data accurate from January 1, 2015 – March 18, 2016):
(Reverse Mortgage clients typically have multiple uses of funds.)
Debt is a major reason for clients to seek financial assistance through a reverse mortgage in Canada. Debt can range from accumulated credit card debt to other loans such as mortgages. Since 59% of HomeEquity Bank customers have stated debt as a common use of funds, by taking a reverse mortgage, they are consolidating their debt with their reverse mortgage loan so as to not have any monthly payments to worry about.
Health Care related (40%)
Approximately 40% of clients use reverse mortgage funds in Canada for some health care expenses, whether for personal support work or to simply pay off debt related to those expenses.
Renovations or home retrofitting are common reasons for clients to apply for a reverse mortgage. Roughly 27% of clients are in need of home renovations/home retrofitting due to wear and tear, leading to their standard of living being compromised or simply due to aging and not being able to function normally in their household.
Income Supplement (25%)
Roughly 25% of clients use reverse mortgage funds as a means to supplement their income. Whether they are still working or already retired, savings may not be sufficient to maintain their lifestyle and thus an income supplement is something that can help ease their financial insecurities.
Living Expenses (18%)
Over 18% of clients reported that the reason they needed a reverse mortgage loan was to pay for living expenses. This can include anything from daily expenses such as groceries, to paying for household bills such as phone and hydro. Further to the use of funds, HomeEquity 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.