a CHIP Reverse Mortgage??
There are many reasons people look to a reverse mortgage for financial assistance:
- To pay off debts;
- Long Term Care Needs
- To renovate or upgrade your home;
- To supplement income; (suggestion)
- To cover healthcare costs in Canada or the US
- To assist children or grandchildren;
- To take a dream trip; or
- To simply enjoy life more.
A CHIP Reverse Mortgage can provide you with up to 55 per cent of the appraised value of your home AND there are no monthly loan payments required, if you do not want to make them. You don’t pay back CHIP until you sell the house, so you can stay in your home and your community worry-free for as long as you wish. Once you sell your home, you use that money to repay the CHIP mortgage and the balance of the money is yours to keep.
A CHIP Reverse Mortgage can help you enjoy retirement, relieve financial stress and take control of your future. It helps you retire in the home you love and on your terms.
Understanding Reverse Mortgages
Imagine having the freedom to travel or pay off nagging debts without any hassle. Those are the joys of CHIP (Canadian Home Income Plan), a reverse mortgage that is secured against the equity you have in your home – the portion of your home’s value that is debt-free. It allows you to unlock the value in your home without having to sell it or move. The money you obtain is yours, tax-free, and you can use it as you see fit. You can also qualify with very limited income.
CHIP isn’t available to just any homeowner. To qualify, you must:
- Be over the age of 55;
- Make the home you own your primary residence;
- Have a well-maintained home;
- Be up-to-date on your property taxes and homeowner’s insurance; and
- We do allow for certain NOSI registrations and often get postponements; depending on the client’s title registration we can have 2nd place mortgages. Hence my suggestion to remove it
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
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.
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.
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.
- 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.
- 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.
Contact us to request an exploratory meeting.