The recently released 2007 SEQUAL Report contains some interesting data on exactly how people are using their reverse mortgages:
1. 90% of new loans were taken as lump sums, and only 10% as an income stream.
This figure is somewhat misleading as the ‘lump sum’ data also includes all loans taken wholly or partly as a ‘cash reserve’ or ‘line of credit’.
2. The proportion of younger borrowers is rising
Although the average age for people taking out new loans is 72, the 40% of new borrowers were under 70 years of age (compared with 29% for existing loans). This indicates that reverse mortgages are growing in popularity the fastest amongst those aged 55-70.
3. Variable interest is the most popular choice
Although fixed rates have risen in popularity to 34% of all new loans in 2007, the vast majority of reverse mortgages were established with a variable rate in place (66%).
4. Mortgage brokers are now the most common way for seniors to establish their reverse mortgage
45% of all new loans were established via mortgage broker in 2007, compared to only 34% directly with a financial institution. This seems to confirm that seniors are actively seeking the wider product choice that brokers can provide in an effort to get a better deal and save on interest.
5. Home improvements and general living the most common purposes
The most common use of funds provided by reverse mortgages in 2007 were:
- Home improvements – 16%
- Regular income - 12%
- Debt consolidation – 11%
- Travel – 8%
- New Car – 5%
The figure for ‘other’ was listed at 41%, but anecdotally this can be mostly attributed to general consumption and living expenses.