The CHIP Reverse Mortgage as your Debt Consolidation Solution

Canadians are choosing to carry more and more debt

For many Canadians, borrowing money has become an increasingly necessary means of keeping up with ongoing expenses. Whether it’s a traditional mortgage to get into a home, a line of credit to cover a major purchase or unexpected expense, or credit cards to pay monthly bills, many Canadians find themselves plagued by a high debt load at one time or another.

A high debt load is often caused by more than just spending or saving habits. Climbing costs of living combined with a slowing economy have further tightened many Canadians’ cash flows. The reality of the COVID-19 situation is that many Canadians will need to increase their debt to cover their monthly expenses, but there are no-payment options available to help them manage and consolidate these debts while increasing their cash flow at the same time.

Why consolidate your debts?

It can be a stressful experience to manage debt from multiple sources. With varying interest rates, due dates, and payment methods, many Canadians become overwhelmed by the sheer effort of keeping up with their debt’s demands. That’s why debt consolidation is such a popular strategy: It makes paying down the debt much more efficient and manageable by rolling multiple high-interest debts into a single sum with lower interest and reduced minimum payments. It helps you get out of debt faster and protect your credit score.

But with so many different debt consolidation solutions available, it can be difficult to decide which option is best for you.

The reverse mortgage advantage

For 55+ Canadian homeowners, a reverse mortgage is a great option to consolidate debt, especially during retirement. In these uncertain times, where investments and the economy have taken a major hit, many retirees will experience a monthly “income gap” where taking on additional debt is the most accessible option to cover the difference. And while retirees may have trouble increasing their income in retirement, the equity held in their home can be leveraged to consolidate their debts into one loan.

If you are a Canadian 55+ and own your home, the CHIP Reverse Mortgage® from HomeEquity Bank could be an excellent option for you. You can get up to 55% of the value of your home in tax-free cash (either lump sum or planned advances), and with a reverse mortgage, the interest rates are a fraction of what you pay with the average credit card. For these reasons, a CHIP Reverse Mortgage presents a fantastic debt consolidation opportunity – but there’s another major benefit to the reverse mortgage you may want to consider…

Say “So long” to making monthly payments

The CHIP Reverse Mortgage frees you from the burden of having to make monthly payments or interest payments until you decide to sell your home (or if you and your spouse pass away). Without these ongoing monthly payments, you’ll be free to focus on what really matters in retirement: Making the most of your daily life by doing what you love, with those you love.

For 55+ Canadian retirees, there’s only one debt consolidation solution that minimizes accumulating debt, reduces financial stress, and increases disposable income without having to make monthly payments or sell or lose ownership of your home: The reverse mortgage.

Want to know more about using the CHIP reverse mortgage as a debt consolidation tool? Contact your DLC Mortgage Broker for more information.

Posted by: Agostino Tuzi
National Partnership Director, Mortgage Brokers
HomeEquity Bank

Agostino Tuzi

Agostino Tuzi is the National Partnership Director, Mortgage Brokers at HomeEquity Bank.

Near-Record Decline in Q1 GDP Better Than Flash Estimate

The hand-wringing about the Q1 GDP data released today misses the point that the data were actually better than expected. The Canadian economy declined at an 8.2% annualized rate in the first quarter, less harsh than the earlier estimate by StatsCan of -10%. Of course, every sector of the economy was hit by the enforced shutdown, but not by nearly as much as most economists anticipated. For the month of March, the decline was 7.2%, less dire than the -9% earlier estimate.

In light of the current unprecedented national and global economic environment, StatsCan is providing leading indicators fo economic activity. Their preliminary flash estimate for April is an 11% decline in real GDP. This estimate will be revised as more info becomes available, but the March and April decreases are likely to be the largest consecutive monthly declines on record.

The Economy Has Bottomed

It looks increasingly likely that we are already past the bottom of the latest economic downturn, with GDP potentially getting back on a positive growth trajectory as early as May.

That won’t be enough to prevent a historically large drop in Q2 output– likely multiples of the decline in Q1–but it would leave the data tracking along the more “optimistic” end of the -15% to -30% growth range estimated by the Bank of Canada in their last Monetary Policy Report. Government support programs for those losing work have been unprecedented–household disposable income actually edged up slightly in Q1 despite the large drop in overall economic activity, boosted by government transfers. With the decline in spending in March and April and the rise in disposable income, the savings rate is soaring. All of us are saving money by doing our own cooking and cleaning. We aren’t travelling and shopping is certainly limited, not to mention the savings on gasoline, entertainment, hairstyling and gym memberships. Hopefully, this could provide a cushion to support spending and the economy will turn sharply higher in Q3.

Still, the three million jobs lost over March and April will not be recouped quickly. The lockdown is easing only gradually, and any activities requiring large gatherings–think tourism, conferences, concerts, movies and sports–will remain closed until there is a vaccine or effective treatment. We expect things will begin to get better from this point, but still look for the unemployment rate to remain elevated at 8.5% in Q4 of this year. It is currently 13%.

The Housing Outlook

Much has been made of the recent CMHC Housing Market Outlook report released this week. The gloomy outlook of up to an 18% drop in home prices, a delayed recovery not until 2022, and a 20% arrears rate garnered headlines. First-time homebuyers were warned that housing was no longer a good investment, at least not over a three-year horizon. But the CMHC’s own data shows that home prices have risen an average of 5% annually over the past twenty-five years. And though no one’s retirement nest egg should consist solely of their residential real estate, a home is one of the few investments that you can actually use. People buy homes for many reasons well beyond wealth accumulation. The pride of ownership and lifestyle choice dominates the decision to buy for many.

Also this week, the Governor of the Bank of Canada suggested that the doomsters were overly pessimistic and asserted his view that the economy would recover from its medically induced coma much faster than the pessimists were suggesting. Clearly, none of us have a crystal ball, nor have we ever before experienced a pandemic recession. While we rise from the abyss, the pain may well be far from over. People are still losing jobs and many businesses continue to sink. Any recovery is dependent on whether the virus cases keep slowing and whether there is a second wave of infections.

But oil prices have risen sharply, a major boon for Alberta and some high-frequency data have improved. The stock market is well off its lows, interest rates have fallen sharply and the qualifying rate for mortgage stress tests has fallen to 4.94%. Actual mortgage rates are near record lows and are likely to remain low for the foreseeable future.

In time, immigration to Canada will restart, and foreign students will return. New businesses are blossoming even now and many sectors will continue to advance. To name a few, we are seeing burgeoning growth in telemedicine, artificial intelligence, big data analysis, cloud services, cyber-security, 5G, home entertainment, virtual everything, home fitness, DYI renovations, indeed, DIY anything.

Dr. Sherry Cooper

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.

Bank of Canada Takes A More Positive Tone

On the heels of a devastating decline in the Canadian economy, the Bank of Canada suggested today that the worst of the pandemic’s negative impact on the global economy is behind us, conceding, however, that uncertainty remains high. The Bank today maintained its target overnight rate at 0.25%. No additional rate cut was expected as the  Bank has described the 0.25% level as the effective lower bound of the policy rate. Governor Poloz has all but ruled out negative interest rates unless the economy deteriorates dramatically further.

Today’s Governing Council meeting is Stephen Poloz’s swan song, as the new Governor, Tiff Macklem, takes the helm today. Macklem took part as an observer in the Governing Council’s deliberations and endorsed today’s rate decision and measures announced in the press release, thereby assuring continuity in monetary policy.

The Bank has taken very aggressive action to support liquidity and the full functioning of financial markets by buying short- and long-term securities. The central bank’s balance sheet holdings of securities have grown to about 20% of Canada’s GDP, up from 5% pre-crisis. That’s still well below the levels seen at the US Federal Reserve, the Bank of Japan, and the European Central Bank, which have conducted these quantitative easing operations since the financial crisis more than a decade ago. However, the Bank of Canada’s securities purchases have been extraordinary in relation to the size of our economy.

“Decisive and targeted fiscal actions, combined with lower interest rates, are buffering the impact of the shutdown on disposable income and helping to lay the foundation for economic recovery.” According to the central bank, the Canadian economy appears to have avoided the most severe scenario presented in the Bank’s April Monetary Policy Report (MPR).

Dr. Sherry Cooper

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.