5-year fixed terms dominate the mortgage business, but not the reverse mortgage business.
“Not many people take the three year and the five year (terms),” said CEO Steven Ranson in HOMEQ’s Tuesday conference call. (HOMEQ is parent of CHIPreverse mortgages.)
Between 40-45% of CHIP customers actually take variable rates (currently at 4.75%), says Ranson. The next most popular term is the one-year fixed (currently at 4.99%).
“We have been trying to encourage clients to take longer terms (than) variable, because we don’t like the interest rate outlook for them.”
Interestingly, from a purely economic standpoint, Ranson says “we don’t really care” which term people take. “The spreads in the various terms are pretty much the same.” (HOMEQ says its average interest rate spread in 2010 was “just below 3%.” Not shabby in the least.)
HOMEQ adds, “…the first wave of baby boomers are now turning 65…that trend is going to continue strongly for the next five to 10 years.”
In turn, our sense is that HOMEQ’s earnings will continue strongly for the next 2-5+ years…at least until they get some serious direct competition—for which there is none currently.
Roughly two million Canadians will retire within the next 60 months. A good chunk of those will not have planned sufficiently for retirement and will certainly be relying on their home equity for liquidity.
Sidebar: For those marketing reverse mortgages, it may be time to shift more emphasis to the net. The stats back that up:
In 1997 only 3.4% of senior-led households had Internet access.
Today, over 40% of seniors age 65+ use the Internet, according to StatsCan.
Two-thirds of Canadians ages 55 to 64 already use the Internet to manage their financial affairs.
HOMEQ says that in 2010, five times as many consumer leads were generated online as in 2005.
Roughly 40% of CHIP customers come to it directly, and 60% are referred by CHIP partners.
The most interesting point (to us) is that CHIP’s broker referrals accounted for only $31 million of volume in 2010. There is absolutely massive growth potential there. (HomEquity originated $206 million of reverse mortgages total in 2010.)
Some parting data points from HomEquity Bank:
For every 2.5 leads a broker submits to CHIP, one converts into a closed reverse mortgage
The average reverse mortgage size referred from brokers is about $170,000