A Guide for Canadians
Courtesy of The Wilson Team, www.wilsonteam.ca
5. Cash in Hand
8. Get Expert Advice
9. By the Numbers
10. Reverse Mortgage vs. HELOC
11. The Process
12. And Furthermore (FAQs)
If you’re a Canadian who is 55 or older, you undoubtedly have dreams for the coming years, including
paying off your mortgage, being debt free, travelling, building your dream deck or patio, helping your
children financially or spoiling your grandchildren. Wonderful dreams, all of them, but they require
money to implement. Luckily, there’s a source of funds available to you if you’re a homeowner: the
equity you have in your home. Why not put it to work for you? We at the Wilson Team of Mortgage
Specialists are here to guide you through the process.
One of the best ways to turn your home equity into a liquid asset is through a reverse mortgage. In
Canada, this instrument is called a Canadian Home Income Plan (CHIP) mortgage. It allows you to access
the existing equity in your home without selling it or paying it back according to a schedule. The money
you receive is tax free and is available to you as long as the home remains your principal residence.
What could be easier?
Reverse mortgages, or CHIPs, were founded in 1986 as an annuity-based solution addressing the
financial needs of Canadians who wanted to access the equity of their top asset: their home. They
are backed by HomEquity Bank and have a reputation as a stable source of funds.
In order to qualify for a CHIP, all people listed on the mortgage must be 55 or older and the money
must be borrowed against the mortgage for your principal residence.
Reverse mortgages are available in the Ottawa area, but not in all locations in Canada. They cannot
be obtained for second homes.
4. Cash in Hand
Generally, you can borrow up to 55 per cent of the value of your home. Since your home may
increase in value over time, the amount available to you may also grow.
The amount you are approved to borrow depends upon your home’s geographic location, the type
of housing you own, your age and gender, and the amount of your current debt on your property.
You can access the money as soon as the mortgage is approved.
The money is tax free.
You can receive the money in one lump sum payment or in monthly withdrawals.
There are no conditions on how you can spend your money.
There is no need to pay off a reverse mortgage until one of the people on the mortgage dies
or until you sell your home.
The amount you owe can never exceed the value of your property.
You and your beneficiaries will not be responsible for any shortfall if interest rates increase
and housing values drop.
Funds from a reverse mortgage must first be used to pay off all secured mortgage loans on
CHIP mortgage rates are generally a percentage point or two higher than those for standard
Start-up costs must be assessed. They typically include an application fee, home appraisal
fee and costs for independent legal advice. Fees can easily reach $2,000 to $2,500 which is
deducted from the principal received.
The amount you’ll be able to pass on to your beneficiaries is affected as your equity
Canadian reverse mortgages have an important safeguard built in so that you can never owe
more than your home is worth.
7. Get Expert Advice
The Wilson Team works with reverse mortgages on a daily basis and our professionals are
skilled at advising you about their benefits and drawbacks. They will help you assess your
options using questions such as:
How much money do you require?
How much is your monthly intake now and in the future? What can you count on?
What kind of lifestyle to you want to lead?
What does your estate planning look like?
What will happen if you are not able to stay in this home and or require assisted living?
8. By the Numbers
If you are worrying about losing equity in your home, consider this: with a reverse mortgage on
half your home, your home would only have to increase in value at half the interest rate of the
reverse mortgage for you to not lose any equity at all.
For example, if you take out a $500,000 reverse mortgage on a $1 million home, and the
interest rate is five per cent, your home would only need to increase in value by 2.5 per cent
(half the interest rate) to ensure you don’t lose any home equity.
$500,000 (the mortgage value) x .05 (per cent, the annual interest rate) = $25,000
A 2.5 per cent annual increase in equity x 1,000,000 (the value of your home) = $25,000
So, take heart; as long as the value of your home grows at half the rate of the reverse mortgage
interest rate, you will retain your equity. In today’s real estate market, this is almost a given.
9. Reverse Mortgage vs. HELOC
A Home Equity Line of Credit is another way to cash in on the equity you have in your home. It is
a loan that is registered against your home, and like any loan or credit card, it required monthly
payments. If you can’t make the payments, you risk losing your home.
In addition, the approval process for a HELOC is more rigorous than for a reverse mortgage,
including a credit check and income verification.
A HELOC is most useful when used an emergency fund; you can be approved without
withdrawing any cash until you need it.
10. The Process
You apply for a reverse mortgage through the Wilson Team.
One of our reverse mortgage specialists will call you to discuss next steps and make sure
you are completely happy with everything.
If you decide to proceed, we'll send you the full information on the amount for which
you qualify and what is required to complete the deal.
A home assessment is required to get a correct valuation. This is the only out of pocket
cost you will incur during the process.
The Wilson Team collects the required paperwork, including identity verification,
retrieving your credit score, information about your income and any additional
paperwork. While your credit score and income are not usually a factor, the Wilson
Team must consider them, given mortgage rules and regulations in Canada.
Before making a commitment, we will require that you get independent legal advice
from a lawyer; we will even speak to family members if you wish
You receive your money! You can set up your reverse mortgage to be one lump sum
payment, or continual monthly withdrawals.
11. And Furthermore (FAQs)
Q. Will the bank own the home?
A. No. The homeowner retains title and maintains ownership of the home. It’s required for the
homeowner to live in the home, pay taxes on time, have property insurance and maintain the
property in good condition.
Q. Will the homeowner owe more than the house is worth?
A. The homeowner keeps all the equity remaining in the home. In our many years of experience,
more than 99 per cent of homeowners have money left over when their loan is repaid. The
equity remaining depends on the amount borrowed, the value of the home, and the amount of
time that has passed since the reverse mortgage was taken out.
Q. How do | receive the money?
A. You have the option of receiving all the money you're eligible for in one lump sum advance;
you can take some now and more later; or you can receive planned advances over a set period
Q. What fees are associated with a reverse mortgage?
A. There are one-time fees to arrange a reverse mortgage such as an appraisal fee, fee for
independent legal advice and our fee for administration, title insurance, and registration. With
the exception of the appraisal fee, these fees are paid for with the funding dollars.
Q. What if the homeowner can’t afford payments?
A. There are no monthly payments required as long as the homeowner is living in the home.
Q. Should reverse mortgages only be considered as a loan of last resort?
A. No. Many financial professionals recommend a reverse mortgage to supplement monthly
income instead of selling and downsizing or taking out a conventional mortgage or a line of
Remember, there’s no need to deny yourself some of the pleasures of growing older. The Wilson Team
of Mortgage Specialists will be happy to help you tap into the equity you have worked so hard to
Call us at 613-695-MORTGAG or find us online at wilsonteam.ca