Growing numbers of Canadians want to age in place, rather than sell and move into an institution. They also want to "have their home and money too." Homeowners, particularly those who are mortgage-free, are sitting on millions in home equity, or accumulated value, that they want to access without giving up the home they love.

The Honourable Tony Ianno, Federal Minister Responsible for Seniors, was recently quoted in The Ottawa Citizen in his continued call for government-backed reverse mortgages for low-income homeowners. These home equity conversion products enable a homeowner to convert accumulated value into cash without selling the home or having to repay the debt until a preset time in the future.

Escalating energy costs and increasing property taxes, combined with rising real estate values, are creating cash-poor, house-rich retirees. Although governments could put their resources into lowering energy and tax burdens for low-income homeowners, this announced investigation targeted at financially-disadvantaged Canadians indicates that the federal government may prefer to make it easier for homeowners to spend home equity to finance decades-long retirement. In the future, would the next step be to consider proceeds of a reverse mortgage as income which could reduce the benefits available from public benefit-support programs?

The task of creating a government-backed reverse mortgage product or a lender insurance program for reverse mortgages falls to Canada Mortgage and Housing Corporation, the national housing agency. Mortgage insurance for reverse mortgages has been identified as an option for enticing lenders into the marketplace although no product or service is currently available.

"We work in a competitive environment, so we don't divulge anything we are working on," said CMHC's Mark McInnis, National Manager Underwriting, who oversees mortgage insurance products and services designed to protect lenders against mortgage default losses. "We are not the only mortgage insurer in the country, so if we start describing services or products we are bringing to market, we lose the advantage."

CMHC is a crown agency, but Underwriting is self-funding. Any program or product developed must be competitively priced to cover costs and make a profit. Would federally-subsidized reverse mortgages for low-income homeowners be more effective than increasing lender participation?

When this writer's first book on home equity conversion was published in 1991, the Canadian reverse mortgage market seemed poised to take off. An established home equity conversion option in the United Kingdom and an emerging alternative in the United States, reverse mortgage variations were familiar choices in many European markets, but virtually unknown in Canada.

A few pioneering private financial companies launched the first commercial reverse mortgage products and began to raise consumer awareness. Their salespeople found that home equity conversion was not an easy sell. When the economy shifted, the Canadian reverse mortgage market imploded leaving only one of the original Canadian reverse mortgage pioneers and it now dominates the market.

Canadian consumers have Canadian Home Income Plan Corporation (CHIP) to thank for any commercial choice homeowners have. This Vancouver-based company offers reverse mortgages nationally through a referral network of major banks, credit unions, mortgage brokers and financial firms.

After retirement, incomes tend to decline and, generally, homeowners no longer qualify for a traditional mortgage of any consequence. Before reverse mortgages, selling was the only way to release equity. For those who definitely want to continue living in their current home and do not meet income criteria for lines of credit, or who do not want the pressure of monthly interest payments, reverse mortgages are a viable alternative, the choice, currently, is a CHIP product or a privately-arranged reverse mortgage.

CHIP's President and CEO Steven Ranson explains that reverse mortgages are "about after-tax cash flow and what to do with the product" from a tax planning and investment management point of view. He reports CHIP's total volume increases 5 to 10 percent each year. In 2003, CHIP wrote $76.8 million in reverse mortgages and in 2004 over $80 million with the total portfolio at $475 million, up from $120 million in 1998.

"Business keeps rolling along," said Ranson who quoted CHIP three-year rates at 7.5 per cent and one-year at 6.95 per cent. "More are taking 3 years than 6 months, but most -- 65 per cent -- take a one-year term."

When asked about potential competition from the federal government, Ranson responded: "I'm not sure what they are up to since they haven't contacted us. Two points in this are: one, the government realizes what a great product this is. Two, we are concerned because we are not sure what problem the government was trying to fix as we do not use income as a qualifier."

Even those without an income, could qualify for a reverse mortgage if they are the right age (CHIP's minimum is 62) and if the property qualifies. Although the reverse mortgage consumes home equity, the property remains under the control of the homeowner. Equity is eroded, and may even be exhausted as compounding interest accumulates, however, if the homeowner has taken this outcome into account, the benefit of equity access and of staying at home would outweigh this loss.

(Editor's note: PJ's next book on reverse mortgages is in the works. Her widely-acclaimed book "Have Your Home and Money Too: The Canadian Guide to Home Equity Management, Reverse Mortgages, and Other Innovative Housing Options" (Wiley) remains a perennial favourite.)