Canadian Home Income Plan – CHIP reverse mortgage is just like the traditional mortgage with a few crucial exceptions. It’s available to people aged 55 years or older and no monthly payments are necessary to pay back the loan. Because there are no monthly mortgage payments required, no credit score checks, or outstanding debt and income requirements. Your ability to make regular mortgage payments, a significant concern with most conventional mortgage lenders, is not an issue.
No monthly mortgage payments are necessary
Well, there’s a lot of misinformation on the internet regarding CHIP reverse mortgages, largely because most Canadians often perform an internet search for a ‘reverse mortgage lender,’ ‘reverse mortgage,’ or ‘reverse mortgage for seniors.’ They fail to add the location (Canada) at the end of that search term.
The Canadian financial system and banking regulations are different from that of the United States and other counties. When you have a conventional mortgage on your primary residence, you’re required to make regular payments to the bank or any other financial lending institution. When you have a line of credit mortgage, you’re supposed to make interest-only payments. Also, you will owe the same principle at the end of your term.
But with a CHIP reverse mortgage, no monthly payments are necessary, which means you will eventually owe more than the amount you borrowed because the interest amount will be added to your balance. Most Canadian reverse mortgage lenders offer an option of paying part or all interest once annually, especially on the anniversary date.
One of the most attractive features of the CHIP reverse mortgage is that a senior can carry the loan for five, ten, 15, or even 25 years and never be asked to make monthly payments. Historically, property prices increase with time. That means a CHIP reverse mortgage balance accrues over time as your house’s value continues to increase. This process ensures that your home’s equity increases over the long term.
Your CHIP reverse mortgage balance won’t exceed your home’s fair value
Regardless of property market fluctuations, CHIP reverse mortgage lenders guarantee, no matter the market conditions, that your mortgage balance won’t exceed your home’s fair value. That means you can never owe the lender more than the total value of your house. This type of loan is often associated with low-interest rates that reflect the confidence that the financial lending institution feels in their exposure to the possibility of a loss due to real estate market fluctuations.
Remember, a CHIP reverse mortgage is an excellent option for a senior who intends to access their home’s equity and doesn’t want to make regular mortgage payments. Also, if you don’t want to be concerned about your current debt exceeding the value of your property.
How much money can you get from a reverse mortgage?
The amount of money (mortgage) you can get varies depending on your home’s value, age, and location of your house. The lowest amount you can get is $20,000 and the maximum amount is $750,000. The specific amount you get is determined through a comprehensive assessment of your property.
All expected and unexpected expenses associated with a reverse mortgage can be paid using mortgage proceeds during the time of funding. That means you won’t be asked to pay the applicable closing costs of your reverse mortgage out of your pocket. Remember, you can get pre-approved for a high loan amount initially and have a small amount of cash advanced. If you need funds later, you can simply call your lender and get funds.
Can I keep the mortgage on my house?
Yes. You still get to keep your home in your name – your name is still on the property title. If you decide to sell your home, your debt will be paid through the sale proceeds. However, you have the option to ‘transfer’ your mortgage (reverse) to a new home.
Remember, you will keep all the equity in your property. After all, 99% of homeowners have equity in their houses when a reverse mortgage is paid. On average, 50 percent of the home value is considered equity by the time a reverse mortgage is paid. If the borrower passes away, the heirs of the property can acquire a standard mortgage on the home to pay the reverse mortgage.
Is your home protected?
Your home is well protected. A reverse mortgage lender guarantees that you or your beneficiaries won’t owe more than the property’s value. What most Canadians don’t know is that they can save on property taxes. You can use a reverse mortgage to take money out of your house and invest it. Remember, all the interest charged on your loan is tax-deductible.
Final thought
Over the years, there has been a substantial increase in the uptake of CHIP reverse mortgages. Despite this growth, analysts believe that there is still room for these reverse mortgage products to help more seniors in Canada. Although they are not for everyone, most seniors have benefited from them. If you intend to get a reverse mortgage, consult with reputable mortgage brokers, a financial advisor, or seek legal advice.
