A first-of-its-kind product by Toronto-based Bloom Finance Company is offering an innovative solution for seniors struggling to fund their retirement in the face of rising costs.

According to a study conducted by the fintech provider and Angus Reid, 67% of Canadian homeowners over the age of 55 are concerned that their savings won’t sustain their quality of life through retirement, and 46% are considering taking on part-time work to close the gap.

Though Bloom already offers a reverse mortgage product, founder and CEO Ben McCabe says lump-sum payments or refinancing options don’t always offer a sustainable solution for seniors struggling to manage everyday expenses.

That’s what inspired the company to introduce its Home Equity Prepaid Mastercard, which gives Canadians 55 and over the opportunity to access some of the equity in their home in monthly increments at mortgage interest rates.

“It’s a payment card that really allows customers to tap into their home,” he told CMT. “By spending on the card, a client will be very gradually and slowly building up a mortgage balance — in all likelihood alongside home price appreciation — and then that mortgage balance is due only when they pass away or they sell their home.”

How it works

By leaning on their home equity, Bloom’s new solution offers customers a way to access funds for everyday expenses. Unlike the other cards in their wallet, however, they won’t receive a bill monthly. Instead, the funds are added to their mortgage balance.

McCabe says the company works with clients to establish an authorization limit based on their home’s value, unique features, and the state of their mortgage. Like a reverse mortgage, a total authorization limit is determined, but rather than receiving a lump sum, customers get a prepaid card with a monthly spending limit.

“Say somebody had a $700,000 home, and we could authorize $240,000, we would suggest to the client that if we set a $2,000 limit on the card, that will last you for 10 years,” he says. “Whatever they spend on the card gets added to their [mortgage] balance, and that’s what interest would accrue against over time.”

McCabe adds that customers can use the prepaid card the same way they would any other Mastercard, but without the monthly bill. He explains that only the funds they use are added to their mortgage balance, and that the card is topped up monthly.

“A core thesis of Bloom is that the ability to access equity in their home in micro amounts is a bridge between whatever their income is, and whatever their income needs to be to deliver the type of retirement that they hope to live,” he says. “That’s why we introduced the card, and where we see the industry going long term.”

Eligibility and application process

Bloom currently offers its Home Equity Prepaid Mastercard, as well as its reverse mortgage product, to customers based in Ontario, Alberta and British Columbia. McCabe says the company is eyeing further expansion, with the goal of eventually becoming a national provider.

For the meantime, Canadian homeowners over the age of 55 with sufficient equity in those provinces can apply on the company’s website, at which point they will be assigned an account executive that will help them through the process.

“We need to be in first position, so if a client for example has some residual HELOC [home equity line of credit] debt or something, we can pay that out first and issue the card, but we need to be the first mortgage,” McCabe explains. “You have to have a sufficient amount of equity in the home for it to work — if somebody has an 80% mortgage against their house it’s not going to work — but most 55-plus Canadians have paid their mortgage balance down enough to work with.”

McCabe adds that customers aren’t necessarily limited to their monthly allotment, explaining that the company will also help them tap into additional equity for unexpected expenses.

“Clients can call us about accessing additional funds if required, whether it’s on the card or deposited to their bank account,” he says. “If the client needed $10,000 to fix some sort of appliances in their house or something like that, that could be made available, subject to a credit review.”

Bloom confirms that the application process for the prepaid Mastercard is treated the same as a reverse mortgage, meaning all standard fees apply.

This includes a $1,650 processing fee, an independent legal advice (ILA) certificate at roughly $300, and a $350 appraisal fee. Bloom covers the appraisal fee upfront and the client is only charged upon closing.

An “overwhelming” reception

After months of testing with a select group of customers, the Bloom Home Equity Prepaid Mastercard officially launched earlier this month and McCabe says the interest has been “overwhelming.” 

He explains that Bloom launched in 2019 with the explicit goal of developing innovative FinTech solutions for Canada’s elderly population, and believes the company’s latest offering could eventually catch on worldwide.

“We’re not aware of any other products like this; we’re pretty sure it’s the first of its kind in the world,” he says. “The need for equity release solutions where the cost of living is accelerating and the challenges that seniors are facing is enormous, and far exceeds market penetration of equity release solutions today.”

This article was updated on March 15, 2024

Note: Coverage of new mortgage products and services, such as the ones mentioned in this article, does not equate to an endorsement by Canadian Mortgage Trends (CMT) or Mortgage Professionals Canada (MPC).

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Last modified: July 22, 2024