Canadians looking for sources of cash in their retirement are tapping into reverse home mortgages in record numbers, according to data released this week.
The parent company of HomEquity Bank, the country's sole provider of reverse mortgages, said that in the fourth quarter of 2011 it closed a record number of reverse mortgages worth $67.2-million. That is up 42 per cent from the fourth quarter of 2010.
On an annual basis, the value of reverse mortgages reached $239-million last year, a 16 per cent rise over the previous record set in 2010.
"Since its inception 25 years ago, HOMEQ Corporation has analyzed the demographic wave of Canadian seniors and how our business can address these trends," Steven Ranson, the company's president and CEO, said in a release.
"Now, the wave is here and we are meeting seniors' needs for improved cash flow in retirement. This tremendous market demand is fuelling our strong growth in originations, while our disciplined approach to operating the business is resulting in healthy net income growth."
Reverse mortgages are becoming increasingly popular among older Canadians who may not have saved enough to fund a comfortable retirement. For cash-strapped seniors who own their home, a reverse mortgage is a relatively easy way to tap into some money.
With a reverse mortgage, home owners can borrow up to 50 per cent of the appraised value of their home. They repay the principal - and interest that has been accumulating - when they sell it.
But some people in the financial community are critical of reverse mortgages. Chartered accountant David Trahair, who recently wrote a book on crushing debt loads, says they should be seen as a last resort. "They may make some sense for house-rich, cash-poor seniors who are having trouble buying groceries but for everyone else, simply applying for a home equity line of credit before retiring is a much cheaper way of securing access to emergency funds."