Understanding the Basics of a CHIP Reverse Mortgage

With life expectancy increasing over the last two decades, retirement can now last anywhere from 20 to 40 years which can make funding retirement a challenge.

This is where a CHIP Reverse Mortgage may be a solution.

In this Learning Bites segment, we speak with Vivianne Gauci, Chief Marketing Officer at HomeEquity Bank, about how a CHIP Reverse Mortgage works, who is eligible to receive one, how the money can be used and some common myths and facts.

Here are some of the highlights of our conversation.

What exactly is a CHIP Reverse Mortgage and how does it work?

A CHIP Reverse Mortgage is a loan secured against the value of your home. It’s exclusively designed for Canadian homeowners aged 55 and over and it allows you to access up to 55% of the equity you have in your home without having to make any monthly mortgage payments. It is most often used by people who really want to remain living in their homes and access the equity from it.

How is a CHIP Reverse Mortgage different from other financial products that are offered?

With a CHIP Reverse Mortgage you don’t have to make any monthly mortgage payments. Other conventional financial products may have lower interest rates, however monthly payments are required. As well, with a CHIP Reverse Mortgage you have a no negative equity guarantee. This means that if for whatever reason your home value goes down versus the money you took out and the interest that you accrued, you have the security of knowing that you will never owe more than what your home is worth, as long as you meet your mortgage obligations.

With a CHIP Reverse Mortgage, do you retain title of your home?

You or your estate retain title and ownership of your home. You are just responsible to pay the loan and interest when you decide to more or sell your home.

Are there any limitations as to what someone can do with the money?

No, there are no limitations on what you can do with the money you receive. For example, many people use it for unexpected expenses such as home renovations or buying a new car. Others use it to pay off an existing mortgage or debt. Sometimes people want to travel with family or purchase a vacation home and use the money for this. Others may need some home assistance to be able to remain living in their home. There really are no limitations to what you can do with the funds you receive.

How long does the process usually take to get a CHIP Reverse Mortgage?

The process usually takes about 3 – 4 weeks. It can be quicker if the paperwork is in order and the mortgage is relatively straight forward.

Once the reverse mortgage has been approved, how are the funds distributed?

You have choices in how you receive the money. You can receive it as a lump sum or access it over time and receive monthly or quarterly payments, which also helps people manage their interest costs over time.

Are there any fees / costs that people should be aware of?

Similar to other mortgage products, there is an appraisal fee. There is also an independent legal assessment fee that you will need to pay to your own lawyer for them to guide you through the process. There is also an administration fee that is charged for the product.

What are some of the common myths associated with getting a reverse mortgage?

People assume that they lose title of their home.

Nothing could be further from the truth. As long as you are meeting your mortgage obligations including keeping up payments on insurance and taxes and maintaining your home, this will not happen. When you are ready to move, at that point you are obligated to pay the amount that you borrowed and the accrued interest.

People assume they can’t get a reverse mortgage if they already have an existing mortgage.

Many people actually get a reverse mortgage to pay off an existing mortgage so they don’t have to make any monthly mortgage payments. As long as the funds from the CHIP Reverse Mortgage are greater than the loan secured against the home, they’re able to get a reverse mortgage. This provides them with extra funds to do other things with the money.

Some people think that reverse mortgages are a last resort solution.

Many financial planners are now considering reverse mortgages as part of a balanced retirement planning strategy. By accessing the equity in your home, you are now able to access another asset class which provides a more risk balanced approach along with increased tax benefits. So, a reverse mortgage can be used not as a last resort but a tool to use as part of a comprehensive retirement plan.

Some people assume that if your spouse passes away, you have to requalify for the reverse mortgage.

Unlike some other financial products, you do not have to requalify or get reapproved for your reverse mortgage, as long as your name is on title.

If someone was interested in getting a CHIP Reverse Mortgage, how do they get started?

Please contact HomeEquity Bank toll-free by calling 1-855-439-7166 and CHIP Reverse Mortgage Consultant will be happy to answer your questions and provide you with a quote on how much tax-free cash you qualify for. You can also visit the CHIP Reverse Mortgage website chip.ca to learn more.