WHY CONSIDER A CHIP REVERSE MORTGAGE??
Here are the top reasons Canadian seniors consider a CHIP reverse mortgage and how they can use the funds:
- Supplement retirement income: CHIP allows homeowners to receive tax-free cash payments to supplement their retirement income, helping them enjoy a worry-free retirement.
- Cover healthcare expenses: Homeowners can use the proceeds from a CHIP reverse mortgage to cover the cost of medical bills, long-term care, or healthcare costs in Canada or the US.
- Pay off debts: Seniors can use the equity in their home to pay off high-interest debts, relieving financial stress.
- Renovate or upgrade the home: Homeowners can use a CHIP reverse mortgage to finance home renovations, repairs, or accessibility modifications.
- Assist children or grandchildren: CHIP can provide funds to help children or grandchildren with expenses like education or a down payment on a home.
- Take a dream trip or enjoy life more: Seniors can use CHIP funds to travel, indulge in hobbies, or enhance their lifestyle.
- Purchase a second property: With a CHIP reverse mortgage, seniors can purchase a second property for investment or vacation purposes.
- Cover unexpected expenses: CHIP can provide a source of funds to cover unexpected expenses, like home repairs or emergency medical bills.
- Improve cash flow: By receiving regular payments from a CHIP reverse mortgage, seniors can improve their cash flow and financial stability.
A CHIP reverse mortgage can provide homeowners with up to 55% of the appraised value of their home, with no required monthly loan payments. The loan is repaid when the house is sold, allowing seniors to stay in their home and community for as long as they wish. Once the home is sold, the proceeds are used to repay the CHIP mortgage, and the remaining balance belongs to the homeowner or their estate. With a CHIP reverse mortgage, seniors can retire in the home they love and take control of their future on their terms.
UNDERSTANDING CHIP REVERSE MORTGAGES:
CHIP (Canadian Home Income Plan) is a reverse mortgage that allows Canadian homeowners aged 55 or older to borrow against the equity in their home without having to sell or move out. Secured against the debt-free portion of the home’s value, it lets homeowners unlock their home’s value and obtain tax-free money, which they can use as they see fit, even with limited income.
To qualify for a CHIP reverse mortgage, homeowners must:
- Be over the age of 55;
- Own and reside in the home as their primary residence;
- Maintain their home well;
- Be up-to-date on property taxes and homeowner’s insurance;
- In some cases, have certain NOSI registrations and allow for 2nd place mortgages, depending on the client’s title registration.
Unlike a traditional mortgage, with a CHIP reverse mortgage, homeowners retain ownership of the home and are not required to repay the loan until they sell the home, move out, or pass away. At that point, the loan, plus any accumulated interest, is repaid from the proceeds of the home sale. If the home is sold for more than the amount owed on the loan, any remaining equity goes to the homeowner or their estate.
CHIP reverse mortgages are regulated by the federal government and offered by HomeEquity Bank. They come with several safeguards to protect homeowners, including caps on the amount that can be borrowed, mandatory independent legal advice, and a “no negative equity guarantee” to ensure the loan amount owed will never exceed the fair market value of the home.
CHIP reverse mortgages are regulated by the federal government and offered by HomeEquity Bank.
A Client’s Story
One of our elderly clients had a leaky roof and wanted funds to repair it in order to sell the home, since she didn’t think she could maintain it. In fact, she had let her home insurance lapse because she couldn’t afford it. Her only income was Old Age Security. She knew she wouldn’t be approved for a mortgage and was turned down for a home equity line of credit.
Instead, she obtained a CHIP Reverse Mortgage, first paying off her homeowner’s insurance with the funds – a condition of the approval – and making repairs. Instead of selling her home, it allowed her to remain there comfortably with no pressure to move. She was a very satisfied client.
A Second Client’s Story
A 60-year-old client owned her own home, appraised at $625,000 with no outstanding mortgage. She wanted to buy an investment property for $210,000. The client received minimal pension income and other sporadic income that was difficult to confirm, so she was turned down for a conventional mortgage. Instead, she obtained a CHIP Reverse Mortgage for the cost of the investment property. She was able to leave her investment portfolio untouched while obtaining an asset that appreciates and generates income. The interest accrued on her CHIP is tax deductible, since the funds were used for an investment. Another satisfied client!
HOW DO I ACCESS A CHIP REVERSE MORTGAGE?
The Wilson Team of Mortgage Professionals is here to guide you through the process of obtaining a reverse mortgage with ease.
Not all lenders offer reverse mortgages. In Canada, the recognized lender is HomeEquity Bank. A Canadian company established 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, the HomeEquity Bank. Today, its head office is in Toronto.
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.);
- Appraised value of your home;
- The condition of your home; and
- Your home equity.
In Canada, the recognized lender is HomeEquity Bank.
To apply for a CHIP Reverse Mortgage, you will need a current appraisal of your home’s value.
When you are approved, you can opt to receive your money in a lump sum of $25,000 or more, or you can obtain an initial payment of $25,000 and request additional sums of $5,000, as needed, like a line of credit.
You’ll need the services of a lawyer to finalize the CHIP Reverse Mortgage. For this transaction, 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.
CHIP REVERSE MORTGAGE HAS TWO AMAZING PRODUCTS
THE INCOME ADVANTAGE PROGRAM
This is an extremely popular program for individuals who are looking to supplement their incomes. You can be approved for the total amount you would need to supplement your income for the next 5 or more years. If you needed $20,000 a year in additional tax-free money, you could apply for $100,000 and if approved then you would take $20,000 a year for the next 5 years.
This is tax free funds that has NO impact on your government income or any investment income. It does not affect your tax bracket in anyway and you are only required to pay the interest back on the funds borrowed and not the entire $100,000 from day one. CHIP will calculate the interest as its being used and you are only drawing $20,000 a year.
You can take this money and have it paid monthly, quarterly, or even annually. It allows you to maintain a wonderful standard of living so you do not have to go without anytime. We have many clients who wish to use the funds to get treatment and medical care in the US. This is a great way to Retire At Home or Aging in Home.
This is tax free funds that has NO impact on your government income or any investment income.
The CHIP max allows you to qualify for a higher loan amount, but you must have property taxes up to date, a credit score over 630 and in a rural neighbourhood.
CHIP MAX OR CHIP STANDARD
The CHIP max allows you to qualify for a higher loan amount, but you must have property taxes up to date, a credit score over 630 and in a rural neighbourhood. This is the program that provides you with a lump sum amount of tax free money with no payments to be made.
If you want to use some to enjoy life in the golden years and share your estate while you can watch your kids or grandchildren use it then the CHIP lump sum would be the solution.
The Standard CHIP does not require you to have taxes paid up to date nor does it need you to have good credit. They do not look at credit on the standard CHIP. They also do not look at income.
WEIGH ADVANTAGES AND DISADVANTAGES
Before deciding upon a CHIP Reverse Mortgage, you should consult the Wilson Team will be happy to review your entire plan to ensure it is the best solution for your circumstance and situation. There are advantages and disadvantages to choosing a CHIP.
ADVANTAGES
- 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 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.
DISADVANTAGES
- Borrowing against your home will affect the amount of money you can leave to your beneficiaries; however, it allows you to enjoy it while you are living and with your loved ones
- Start-up fees can be higher than those for other loans; they typically include an application fee, an appraisal fee and a legal fee. These fees will be deducted from the principal of the loan; however, there are NO payments and its tax free
- Interest rates are generally higher than for regular mortgages or secured lines of credit; but you don’t need to qualify or pay back monthly
- The factors influencing the amount of the loan you can obtain from CHIP is based on a number of factors, including your geographic location; your age and gender; and the type of home you own. Given these considerations, it might not be the best fit for you; and
- If you are borrowing the money to invest, it is considered a leveraged investment and could add more risk depending in where you are investing. It can be perfect to buy an investment property as you wont have to make payments, you can collect the rent as income and you can leave a wonderful asset to your family for the next generation.
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. It is important to consider all options and choose one that suits you best.
Sometimes, it makes sense to take advantage of the lower rates of a secured line of credit or a traditional mortgage. As you ponder the best option for your situation, here are some questions to consider:
- How much money do you need? Want?
- What is your monthly intake now? In the future? How much of this income can you count on continuing?
- What kind of lifestyle do you want to lead?
- What is your plan for your estate?
- What will happen if you can’t remain in this home or require assisted living?
- What are your other options? Perhaps you could downsize and put more equity into your pockets that way; there are many options that the Wilson Team can help you explore.
One size loan does not fit all, and the Wilson Team of Mortgage Professionals wants to be certain you find the one that suits your needs and your lifestyle.
LONG TERM CARE GUIDE
HOME RENOVATIONS FOR ACCESSIBILITY AND AGING IN PLACE
Canadian seniors can use a CHIP (Canadian Home Income Plan) reverse mortgage to fund home renovations, including retrofitting their home to make it more accessible and suitable for aging in place. Retrofitting a home can include modifications such as adding grab bars, wheelchair ramps, stairlifts, and other accessibility features.
With a CHIP reverse mortgage, homeowners can access a portion of their home’s equity to fund these renovations, without having to make any monthly payments. The loan, including any interest accrued, is only repaid when the homeowner sells the home or passes away.
CHIP reverse mortgages also come with a “no negative equity guarantee,” which ensures that the amount owed on the loan will never exceed the fair market value of the home at the time of repayment. This means that homeowners can have peace of mind knowing that they will not owe more than their home is worth.
While a CHIP reverse mortgage can provide funding for home renovations, seniors should carefully consider the costs and benefits of retrofitting their home and seek advice from a qualified contractor or consultant to ensure that any modifications are appropriate for their needs.
Using CHIP Reverse Mortgages for Home Renovations and Increasing Property Value
Canadian seniors can use a CHIP (Canadian Home Income Plan) reverse mortgage to fund home renovations and increase the value of their home. Renovations may include updating kitchens or bathrooms, adding living space, or enhancing the curb appeal of the home.
By using a CHIP reverse mortgage, homeowners can access a portion of their home’s equity to fund these renovations without having to make any monthly payments. The loan, including any interest accrued, is only repaid when the homeowner sells the home or passes away.
It should be understood that while renovating a home can increase its value, seniors should carefully consider the costs and benefits of the renovations and seek advice from a qualified contractor or consultant to ensure that any improvements are appropriate for their needs and the local real estate market.
Topping Up Real Estate Investments with CHIP Reverse Mortgages
Additionally, a CHIP reverse mortgage can also be used to top up real estate investments, providing funds to purchase additional properties for investment purposes. Again, seniors should carefully consider the risks and benefits of any real estate investments and seek advice from a qualified financial advisor before making any decisions.
By using a CHIP reverse mortgage, homeowners can access a portion of their home's equity to fund these renovations without having to make any monthly payments.
The CHIP reverse mortgage program requires that the property purchased with the loan is the primary residence of the borrower.
Purchasing Investment Properties with a CHIP Reverse Mortgage
While a CHIP (Canadian Home Income Plan) reverse mortgage can provide funds for seniors to purchase investment properties, it’s important to note that the funds obtained through a reverse mortgage cannot be used to purchase a property that the homeowner intends to live in only after a few years. The CHIP reverse mortgage program requires that the property purchased with the loan is the primary residence of the borrower.
However, seniors can use a CHIP reverse mortgage to purchase a property that will serve as their primary residence, with the intention of converting it into an investment property later. For example, a senior may purchase a smaller, more manageable property with a CHIP reverse mortgage, live in it for a few years, and then decide to rent it out and move to a different primary residence.
It’s important to note that any income generated from the investment property is considered separate from the CHIP reverse mortgage and does not affect the repayment of the loan. The loan, including any interest accrued, is only repaid when the homeowner sells the home or passes away.
Seniors should also carefully consider the risks and benefits of investing in real estate and seek advice from a qualified financial advisor before making any decisions.