Reasons to Consider a CHIP Reverse Mortgage
During the pandemic, seniors across Canada have been flocking to take advantage of CHIP Reverse Mortgages and there’s no sign of the trend slowing down. The Wilson Team of Mortgage Experts is happy to assist you in joining the growing number of Canadians who are benefiting from this opportunity.
What is a Reverse Mortgage?
A reverse mortgage is a loan secured against the value of your home, offered by HomeEquity Bank or Equitable Bank. It’s a convenient vehicle for taking advantage of the equity you’ve earned in your home over the years, instead of dipping into savings or cashing in your portfolio. Undoubtedly, the value of your home has grown over the years and is worth much more than you originally paid for it. Much of that equity is at your fingertips in the form of a reverse mortgage.
Once you are approved for a reverse mortgage, you can obtain your loan in a lump sum or installments. The money is yours to use for any reason: travel, home repairs, a fancy car, or helping your children make a down payment on their own home. You’re the boss.
CHIP (Canadian Home Income Plan) mortgages, the brand issued by HomeEquity Bank, allow seniors to borrow up to 55 per cent of the appraised value of their home – ideal when home prices are appreciating and interest rates on home loans are low.
There are also no monthly loan payments required. Seniors don’t pay back the CHIP until they sell the house, so they can stay in their homes and communities without worrying about the expense of doing so. Once the home is sold, the loan must be repaid; any balance remaining goes to the seniors or their estate.
Another bonus is that the money you borrow is tax-free and it does not affect any Old-Age Security or Guaranteed Income Supplement (GIS) benefits seniors are receiving. The homeowner must, however, maintain the home and remain current on property taxes and homeowner’s insurance.
Global News has reported that Canada’s two reverse mortgage lenders both saw a surge in loans in 2020: Home Equity Bank had a 14 per cent increase in new reverse mortgages during the last quarter of the year, while Equitable Bank doubled its reverse mortgage balance between Nov. 2019 and Nov. 2020. Part of this interest is due to concerns about long-term care, given the spread of COVID-19 in those facilities; seniors are more eager to age in place in their homes. However, much of the interest stems simply from the climbing house prices and the low mortgage interest rates that will allow seniors to get a loan cheaply to access the value buried in their home, an amount that has likely grown since it was purchased.
Easy to Arrange
The Wilson Team of Mortgage Professionals is here to guide you through the process of obtaining a reverse mortgage; it’s painless.
Not all lenders offer reverse mortgages. In Canada, the major recognized lender is HomeEquity Bank. The bank began in Vancouver in 1986 as the Canadian Home Income Plan Corporation. In 2009, it became a chartered bank, recognized as a Schedule 1 Canadian Bank, HomeEquity Bank. Today, its head office is in Toronto. Equitable Bank also offers reverse mortgages.
To apply for a CHIP Reverse Mortgage, you will need a current appraisal of your home’s value. Once you have the appraisal done, the lender will consider these factors in evaluating your application:
- Your age and your spouse’s age;
- Location of your home;
- Type of home (e.g., detached, condo, townhouse, etc.);
- The appraised value of your home;
- The condition of your home; and
- Your home equity.
Once the lender approves your application, you’ll need the services of a lawyer to finalize the transaction. When you meet with your lawyer, you’ll need to have:
- Valid and adequate home insurance;
- Property tax statement (current year or deferred property tax statement);
- Two pieces of valid identification;
- Power of Attorney and Power of Attorney Identification (if applicable); and
- Statements for any secured debt.
Before deciding upon a CHIP Reverse Mortgage, you should consult your financial advisor – and the Wilson Team will be happy to recommend one of the professionals with whom we work regularly. There are advantages and disadvantages to choosing a CHIP.
- Tax-free money to use as you see fit;
- CHIP income doesn’t affect Old-Age Security or Guaranteed Income Supplement benefits;
- No need to make regular payments on the loan;
- You maintain ownership of your home;
- Your income and credit are not part of the evaluation for a CHIP;
- Repayment is not required until you sell your home, the surviving partner passes away or you reach the maximum borrowing amount;
- The amount you owe can never exceed the value of your property;
- Interest paid on the CHIP is tax-deductible if the loan was used to earn investment income;
- You and your beneficiaries will not be responsible for any shortfall if interest rates rise and housing values drop; and
- You can repay the loan at any time, although penalties may apply.
We at the Wilson Team of Mortgage Professionals would be happy to help you explore the CHIP Reverse Mortgage and determine if it is right for you. Contact us today for an exploratory meeting.