Sunday, 12 July 2015

Reverse Mortgages - A CHIP Off The Old Block?

Forget what you think you know about Reverse Mortgages!

Many people have heard the term "Reverse Mortgage" used in passing, but lately there seems to be a lot of misconceptions and misunderstandings about the term and the concept.

Much of the controversy surrounding reverse mortgages has to do with the bad reputation they earned(and sometimes deserved!) in the United States. Historically, reverse mortgages have had such negative connotations surrounding them as astronomical interest rates, exorbitant fees, and a distinct lack of equity(or even ownership) at the end of one's life or mortgage term. This problem stemmed directly from poor handling by the lenders and even worse regulation by the US government.

Bad golf jokes aside, what's a CHIP?

Enter CHIP

The good news is that in Canada we are extremely fortunate(aren't we always?) to have some great reverse mortgage programs and some even better legislation and regulations that allow us to borrow equity from our homes securely and safely.

CHIP(by Homequity Bank) is a reverse mortgage program designed for homeowners at least 55 years of age who have equity built up in their homes and would like easy access to it. This program is the only one of it's kind in Canada and is administered exclusively by Homequity, so if you hear a local credit union or bank offering you a "reverse mortgage", it's either something different entirely or it is CHIP and they're just not telling you that yet. 

How Does It Work?

This program is similar to a traditional mortgage in that it is essentially a loan secured by your home. The key difference is that with CHIP you are not required to make monthly payments(although you may if you choose). What this means is that you can access the equity in your home without encumbering yourself with more monthly payments when you are likely already on a limited income.

Your credit score and/or your annual income do not make a difference when qualifying for a reverse mortgage like this; all that determines your eligibility is your age, the value of your home, and how much equity you have built into it(i.e. are there any existing mortgages on the home?). If you are at least 55 years old and own a good portion of your home, you likely are already qualified to take advantage of CHIP.

The Benefits

Aside from not having to make regular monthly payments, a CHIP reverse mortgage comes with some other great features you should be aware of:

  •  You choose how much(up to the maximum for your home and age) and how you would like to receive the income. It can be monthly income, one large lump-sum, or multiple lump-sum advances. This all comes down to your preference.
  • The income you receive from your reverse mortgage(whether monthly or lump-sum, you choice), is Tax-Free. It is considered a loan advance and therefore not included in your taxable income. This means that the same amount of equity($) could go further than other types of retirement income. 
  • You always maintain ownership and title to your home as long as you live in it, period.
  • In the event you sell your home or pass away, you are only required to repay the outstanding balance(with accumulated interest). There are no extra fees or penalties for you to repay the reverse mortgage in full.*(If repaid after 36 mos. or at any time in the event of death of the owner)
  • Your CHIP reverse mortgage is GUARANTEED to never exceed the value of your home. CHIP provides a clause in your contract that protects you from this situation; they will cover the difference if there is a shortfall upon your death. 
A reverse mortgage is not the solution for everyone, but for some people it may be an excellent option to retain or improve your quality of life through making use of the equity you already have in your home. For more information or questions, feel free to contact me anytime or,
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