Canadian Home Income Plan (CHIP)
Reverse Mortgages in Canada
Understanding a CHIP Home Equity Reverse Mortgage for Seniors
A Reverse Mortgage in Canada is just like most other mortgages, with a couple of important exceptions: it is only available to seniors aged 55 years or older and there are no monthly repayments required to pay back the mortgage. Because there are no repayments, there are also no credit-checks or income/debt requirements. The borrower’s ability to make payments, typically an important concern with most banks, is simply not at issue here.
Your loan balance will not exceed fair market value of your home
Regardless of market fluctuations, the Canada Reverse Mortgage lender guarantees, no matter what, that the loan balance will not exceed the fair market value of the home. In other words, you can never owe the lender more than the value of the home. Low interest rates in these types of loans reflect the confidence that a Lender feels in their exposure to loss due to market value fluctuations. Entering into a Reverse Mortgage in Canada is a great option for a senior who needs access to their home’s equity but doesn’t want to make payments or be concerned about their debt exceeding the value of their home.
No need to do rate shopping for your reverse mortgage
There is only one national lender that offers reverse mortgages in Canada, so there is no rate shopping to be done. Rates are of course higher than those for a regular mortgage, as the bank is offering to lend money and not take a payment for an unpredictable period of time. The premium on rate is for the luxury of not making a payment, nothing else. If it were an awesome investment for the bank, I think we would see a lot more banks offering reverse mortgages in Canada. We don’t. A loan without payments is simply not something that investors get excited about.
Reverse Mortgage in Canada Misconceptions
Myths and Facts of a Reverse Mortgage in Canada
Myth: The lender owns your home.
Fact: You remain the owner of your home. All you are required to do is pay your property taxes and any other maintenance fees required as well as maintain your property and be sure to have proper fire insurance.
Myth: You will have to pay taxes on the money you get from the Canadian Home Income Plan or any reverse mortgage in Canada.
Fact: In Canada the money that you receive from the Canadian Home Income Plan or any reverse mortgage in Canada does not qualify as taxable income and will not affect any government benefits that you currently receive including the Old Age Security and Guaranteed Income Supplement.
Myth: If I have poor credit I won’t qualify for a reverse mortgage in Canada or Canadian Home Income Plan.
Fact: In order to qualify for a reverse mortgage in Canada you do not need to have good credit. The only requirement is that you and your spouse are 55 years of age or older.
Myth: The fees and closing costs for a reverse mortgage in Canada are very high.
Fact: The fees to register a Home Income Plan reverse mortgage are much the same as any other mortgage product. There is the appraisal fee and the fee for your independent legal advice. Appraisals can range from $175 to $400 and the legal advice typically costs $300 to $600 depending on who you hire. Other fees that are incurred are for the conveyance, closing and administrative costs which total $1,495 and are deducted directly from your Home Income Plan funds and therefore are not out-of-pocket.
Myth: I can be forced out of my home.
Fact: You can remain in your home for as long as you like. You will not be required to pay back the loan unless you or your spouse sell your home, move out or both pass away.
Myth: I can end up owing more than my home is worth.
Fact: It is guaranteed that the total amount owing will never exceed the fair market value of your house at the time of sale.
Myth: If I pass away the bank will own my home and my heirs will be left with nothing.
Fact: Your heirs will not be required to sell the house after you pass away and will have the option to pay back the Canadian Home Income Plan reverse mortgage and keep your home if they choose.
Myth: There are restrictions on what you can and can't use the money for.
Fact: You can use the money for what ever purpose you choose whether it be a new roof on your home, gifts for your grandchildren or a special trip for you and your loved ones!
