Using your home equity like a credit card is nothing new. Using your home equity like a credit card and not having to pay anything back until you sell? That is new. And that’s what reverse mortgage challenger Bloom Financial has just launched.

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For years, you’ve been able to borrow against your equity using home equity lines of credit (HELOCs) and non-prime secured credit cards. But both of those things require monthly payments. Bloom’s new Home Equity Prepaid Mastercard, the first of its kind in Canada, requires no payments because it’s linked to a reverse mortgage.

While critics might argue it’s a fast-track to fritter away your nest egg, the Bloom Card is designed to help seniors spend more slowly. Competitors require customers to borrow in $5,000 to $10,000 minimum increments. Bloom lets folks borrow in much smaller amounts — only as needed — to cover living expenses, for example. For the financially disciplined, that can help interest accumulate more slowly.

Fees for borrowing more money are another factor, and they add up. Competitors charge $50 every time reverse mortgage customers dip back into the honeypot post-closing. The Bloom Card has no such fee grab.

To get a Bloom Card, you must be in the 55-and-up club, but Bloom’s average customer is 71. Loan amounts are primarily actuarial — and appraisal-based. You get higher approval amounts, the longer you’ve been alive, the more your home is worth and the more marketable your property and location. And, because no payments are required, proof-of-income and credit requirements are minimal compared to applying for a regular mortgage.

“The product widens the appeal of equity release to a broader audience, particularly those without an existing mortgage that they’re looking to eliminate the payment on,” says Bloom chief executive Ben McCabe. “We’re seeing a much higher percentage of people interested in the card who have free and clear homes.” That compares to regular reverse mortgages, where more people borrow to wipe out an existing debt.

The downsides

Like all reverse mortgage products, the rates aren’t cheap. Lenders build in rate premiums because it’s more expensive for them to fund such loans.

Moreover, because borrowers only repay a reverse mortgage when they leave their home or die, lenders must wait, on average, seven to 12 years to get their loot back.

Nonetheless, Bloom’s rates are competitive with rivals HomeEquity Bank and Equitable Bank: 6.94 per cent for a five-year fixed, 7.58 per cent for a three-year fixed and 8.39 per cent for a one-year fixed.

Its pricing is about 180 to 235 basis points over garden-variety mortgage rates, which is par for the course in the reverse mortgage market.

The Bloom Card is registered as a first mortgage and is available only in Alberta, B.C. and Ontario for now. Your castle needs to be owner-occupied and valued at a quarter-million dollars minimum.

Setup fees total roughly $2,300 and up, and the card has no annual fee. Each month, you’ll get a financial snapshot: what you owe, the interest bill and how much you’ve still got to play with.

One big difference from a regular credit card is that the Bloom Card, like all reverse mortgages, has prepayment penalties. Eager beavers who pay their principal early face charges that range from four per cent of the principal payment in the first year to three months of interest after the third year.

But reverse mortgage customers seldom want or need to make prepayments anyhow. And Bloom does let you optionally pay the interest each month — should you wish to dodge the growing interest snowball.

The upside

Where Bloom shines is against traditional reverse mortgages that require you to borrow in big chunks.

According to the company’s scenario calculator, a senior homeowner borrowing $2,000 on the Bloom Card monthly for ten years ($240,000 total) could save $129,661 versus a regular lump sum reverse mortgage, assuming a 6.94 per cent interest rate.

If that same homeowner instead borrowed from a competing lender in $10,000 increments, the Bloom Card would still save them $7,013 — including fees — all while offering more convenience.

The product widens the appeal of equity release to a broader audience

Ben McCabe

Convenience matters because, with competitors, traditional subsequent advances take time to arrange and deposit in your bank account. By contrast, the pre-authorized funds on the Bloom Card are instantly available. No applications or phone calls are required. You simply swipe your card at any retailer like a regular credit card.

“We try to establish a sustainable monthly spending limit,” says McCabe. Those limits range from $1,000 to $4,000 but might go up in the future for qualified homeowners. I imagine this limit’s purpose is to prevent borrowers from blowing their brains out and to manage the lender’s capital.

“It’s a total that can be used for at least 10 years,” McCabe adds. If clients need to borrow more, “the funds can be available to them, they just need to call us.”

In sum

For those who have never heard of Bloom, it’s a fledgling competitor in the reverse mortgage space, a market that’s growing over 25 per cent a year. The company is well-backed and has multiple bank partners behind the scenes.

With this innovation, Bloom is trying to be that agile speedboat that zips past the ocean liners — HomeEquity Bank and Equitable Bank — in the reverse mortgage space. Those competitors may eventually copy the Bloom Card, but for now — assuming you can’t qualify for a HELOC — it’s the most flexible equity-release product available.

And sure, some folks might go on a spending spree, but don’t point fingers at the plastic. It’s like faulting a knife for a cut — they’re both just tools, after all. The fact is, there are few practical solutions for cash-starved seniors with little but equity. Products like this can be a financial life raft for some.

Ideally, more folks would plan for retirement better and not need reverse mortgages at all. But that’s far easier said than done in a country where taxes and the cost of living can suck the life out of you. Moreover, Canadians’ saving mentality isn’t what it used to be, and an increasing number of seniors have no one to leave their home equity to anyhow.

With three million households entering retirement in the next decade, Canada’s reverse mortgage market could easily grow by a factor of 10. That’s why, as companies like Bloom make tapping equity more convenient and cost-effective, they’ll have an endless stream of customers.

Robert McLister is a mortgage strategist, interest rate analyst and editor of MortgageLogic.news. You can follow him on X at @RobMcLister.

Want to know more about the mortgage market? Read Robert McLister’s new weekly column in the Financial Post for the latest trends and details on financing opportunities you won’t want to miss

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