Bloom Finance Company rolled out its reverse mortgage product for Ontario homeowners aged 55+ this week, with plans to expand to other provinces across the country soon. This follows a soft launch in select markets in the province this summer.
Up until now, there have been two dominant reverse mortgage providers in Canada, HomeEquity Bank and Equitable Bank. Both have enjoyed incredible growth in the reverse mortgage space in recent years as a growing number of seniors turn to their home equity to support them in their retirement years, particularly as home values have skyrocketed.
“Canadians over 55 have more than $1 trillion of wealth built up in their homes, but many are retiring without enough savings to maintain their standard of living throughout their full retirement,” said Bloom founder Ben McCabe.
Bloom, which first launched a limited rollout of its Bloom Reverse Mortgage earlier in the summer, is the first fintech entrant to the Canadian reverse mortgage market.
“As we anticipated, there is no shortage of demand for this product and our applicant volume is growing daily,” McCabe told CMT.
The demand isn’t surprising given the immense growth in reverse mortgages over the past decade. In 2011, there was just $898.5 billion worth of reverse mortgage debt in Canada. That’s soared more than 367% to over $4.4 billion as of 2020.
“Given what has happened with home prices, the growing retired population in Canada, and Canadians’ increasing acceptance of this product as a powerful tool to support quality of life in retirement, we think that trend is going to continue to accelerate,” McCabe added.
What Bloom brings to the market
As a key differentiator, Bloom is the only non-bank provider of reverse mortgages in Canada, McCabe notes. They’re also a fintech company with a focus on revolutionizing how home equity is unlocked.
“We think the process of accessing equity in the home should be as simple and comfortable as withdrawing funds from any other retirement wealth account,” said McCabe, the former COO of Canadian fintech firm Thinking Capital.
“The only way to make that happen is by leveraging technology to remove friction from the process – removing paper, tapping all available data sources to cut down on information asks directly to the customer, and making it seamless to withdraw funds when needed,” he said. “As a fintech, that’s the platform and solution we think we’re well-positioned to build.”
Another component of Bloom’s mission of providing a “simpler, friendlier” process is having the home appraisal included as part of their service. Generally, lenders require the borrower to pay for the appraisal upfront.
In terms of its product offering, Bloom currently only has a 5-year fixed product, with its rate pricing in the middle of the field compared to its competitors.
Its 5-year fixed rate is currently available at 4.99%, with HomeEquity Bank’s CHIP product at 5.14% and Equitable Bank’s Flex product at 4.89%. Equitable’s Lump Sum product, which releases all of the funds at once, currently has an even greater edge, at 4.19%.
As the company continues to grow, it will expand its suite of products, although McCabe says they don’t plan to mimic the product range of their competitors.
“We’re working on a few new product innovations now, with a focus on how, where and in what quantities home equity can be accessed,” he said. “Our vision is to make home equity seamlessly accessible as a tool to support retirement, similar to any other retirement wealth account.”
Here’s a quick run-down of some of Bloom’s product details and how they compare to the other lenders:
Minimum age: 55
This is the market standard
Minimum home value: $100,000
Vs. $150,000 for HomeEquity (HEB) and $250,000 for Equitable Bank
Loan size: $20,000 to $2 million
Penalty policy: 4% of the balance in year one, 3% in year two, 2% in year three and three months’ interest thereafter until year 10, with no penalty after that
This is about 100 bps lower than HEB in the first three years, while they charge three months’ interest after the third anniversary. HEB charges no prepayment penalty after the fifth anniversary as long as the client provides three months of written notice. Equitable’s penalty structure is five months’ interest in year one, four months’ interest in year two, three months’ interest in years three to five and no penalty after the 10th anniversary
Setup fees: Flat fee of $1,200 for processing and $450 for the appraisal, or $1,650 all in.
HEB charges $1,795, which includes the closing service, while Equitable charges $995 with the closing service separate at a cost of up to $600.
Given that Bloom pays for its own legal fees, as well as the appraisal and closing costs, McCabe estimates the net cost to the borrower is about $600 below market, with the only other cost for the client being their own independent legal counsel.
Broker partnerships will be central to its growth
Bloom currently has a partnership with a Canadian Schedule 1 Bank for its funding arrangement, which purchases the loans the company originates.
Asked about the company’s ability to meet future demand, McCabe said their funding partner has “ample appetite” for this asset class. “Reverse mortgages are a very attractive asset class for institutional lenders, so we have no concerns that there will be opportunities to diversify funding sources as we grow,” he said.
As part of that growth plan, McCabe said they are investing in their direct-to-consumer channel, but that broker partnerships “will definitely be central” to their growth plans going forward.
“We think a very significant, relatively untapped distribution channel for home equity release solutions in Canada is wealth management and financial advisory,” he said. “These groups play a central role in the UK and U.S. markets, and getting their engagement here will be a key to truly unlocking the potential of home equity release in Canada.”