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21 Aug

Everything you Need to know about CHIP Reverse Mortgages!

Mortgage Tips

Posted by: Kim Seifert

EVERYTHING YOU NEED TO KNOW ABOUT REVERSE MORTGAGES

Wouldn’t it be wonderful to be able to have money to do more of the things you love? To be able to have the freedom to pursue things you truly enjoy, especially in your Golden Years? Enter in a CHIP Reverse Mortgage! A Reverse mortgage is a simple and sensible way to unlock the value in your home. This mortgage product can tap into your home’s equity and turn it into cash to allow you to enjoy life on your terms.

A CHIP Reverse Mortgage is a loan secured against the value of the home. With this type of mortgage product, you are not required to make regular mortgage payments. Instead the loan is repaid only when the homeowners no longer live in the home. Keep in mind that there are conditions with this. The homeowner is required to keep the property in good condition and keep up to date on property taxes and insurance.

There are also other qualifications an applicant must meet in order to qualify for this type of mortgage:

  1. Homeowners must be age 55 or older
  2. You must reside in your home/residence for 6 months out of the year
  3. If the title of the property is registered to more than one person, you must be registered as joint tenants, not just as tenants in common. The difference between these two types of shared ownership is what would happen to the property when one of the owners passes on. If the property is joint tenants, the interest of a deceased owner automatically gets transferred to the remaining surviving owner. If it is tenant in common the deceased tenant’s property interest belongs to his or her estate.
  4. Although you do not need to have an income to qualify for the borrowed amount as there are no payments required, you will have to stay up to date on paying the property taxes, fire insurance and strata fees (if applicable). The income you have coming in will have to be enough to adequately cover those associated fees.

Now for the big question you are all asking: How much can I borrow?

Well, to answer this there are factors that contribute to the total value. First, your age is a determining factor for this mortgage product. Essentially, the older you are the more you will qualify to borrow. The second factor is in direct relation to the details of your property. For instance, a detached home will qualify to borrow a higher amount than say a condo or townhome. The final factor to consider in this is the maximum amount that can be accessed through a CHIP Reverse Mortgage. The max amount is set at 55%. So, if your property is worth $1,000,000 and you are looking to qualify for the maximum amount, that would give you a mortgage of $550,000. If accessing 55% Loan To Value is not high enough there are private lending options that will consider increasing the Loan To Value up to 65%.

An easy way to take all three of those factors into consideration is to visit www.chipadvisor.ca and enter in your details. This can give you a rough idea of what the maximum amount is that you will be able to receive through a CHIP Reverse Mortgage.

One final note is to consider the costs associated with a CHIP Reverse Mortgage. Yes, there are no required payments due while you are living in your home. However, you should expect the following costs to be associated with this product:

1. An appraisal of your property will be required with an approximate cost of $300.
2. There will be legal costs associated which will be around $1495.00 This amount can be included in the mortgage funds and does not need to be paid out of pocket.
3. Independent legal advice is required on all CHIP Reverse Mortgages. The approximate cost will be $600. However, this again can be included in the mortgage funds and does not need to come out of your pocket.
4. Mortgage Penalties may incur if you are breaking the term of your mortgage.

  • In the 1st year it is 5% balance of the funds owing
  • In the 2nd year it is 4% balance of the funds owing
  • In the 3rd year it is 3% balance of the funds owing
  • In the 4th year and beyond it is 3 months interest penalty
  • If you are deceased, no penalty

If you are selling to move to a nursing home the penalty fees will be reduced by 50%.

Below, Reverse Mortgage myths are separated from the facts:

1. Myth: The bank owns the home.
Fact: The homeowner always maintains title ownership and control of their home, and they have the freedom to decide when and if they’d like to move or sell.

2. Myth: Those with a reverse mortgage will owe more than their house is worth.
Fact: HomEquity Bank’s conservative lending practices allow clients to take a maximum of 55% (33% on average) of the home’s appraised value. In fact, 99% of HomEquity Bank’s clients have equity remaining in the home when the loan is repaid.

3. Myth: Reverse Mortgages are too expensive because the rates are high.
Fact: HomEquity Bank rates are modestly higher than regular mortgages because there are no payments required. HomEquity Bank offers rates as low as prime +1.25%*.

4. Myth: The bank can force the homeowner to sell or foreclose at any time.
Fact: A reverse mortgage is a lifetime product, and as long as property taxes and insurance are in good standing, the property remains in good condition, and the homeowner is living in the home, the loan won’t be called even if the house decreases in value. Reverse mortgages provide peace-of-mind that the homeowner can stay in their home as long as they’d like.

5. Myth: The homeowner cannot get a reverse mortgage if they have an existing mortgage.
Fact: Many of our clients use a reverse mortgage to pay off their existing mortgage and debts, freeing up cash flow for other things

6. Myth: The homeowner cannot get a reverse mortgage if they have an existing mortgage.
Fact: Many of our clients use a reverse mortgage to pay off their existing mortgage and debts, freeing up cash flow for other things.

7. Myth: Surviving spouses are stuck paying the loan after the homeowner passes  away.
Fact: Surviving spouses can choose to remain in the home without having to make a payment unless they choose to sell the home.

8. Myth: A reverse mortgage is a solution of last resort
Fact: Many Financial professionals recommend a reverse mortgage because it’s a great way to provide financial flexibility. Since it’s tax-free money, it allows retirement savings to last longer.

Below are some common questions and answers:

Will the homeowner owe more than the house is worth?
The homeowner keeps all the equity remaining in the home. In our many years of experience, over 99% 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’s passed since the reverse mortgage was taken out.

Will the bank own the home?
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.

What if the homeowner has an existing mortgage?
Many of our clients use a reverse mortgage to pay off their existing mortgage and debts.

Should reverse mortgages only be considered as a loan of last resort?
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 credit.

What fees are associated with a reverse mortgage?
There are one time fees to arrange a reverse mortgage such as an appraisal fee, fee for independent legal advice as well as our fee for administration, title insurance, and registration. With the exception of the appraisal fee, these fees are paid for with the funding dollars.

What if the homeowner can’t afford payments?
There are no monthly payments required as long as the homeowner is living in the home.

In closing, a CHIP Reverse Mortgage product is a unique product that can be very powerful and useful for a certain demographic. It can allow you tap into the funds that you need while allowing you to remain in your family home. We have seen clients use their home’s equity for a variety of things from supplementing their pension income, to paying off debts and helping out family without depleting their current savings. It offers unique benefits that may just be right for you.

If you are interested or want to learn more, contact me today and I can give you the details that will relate to your unique situation.

Kim Seifert
Mortgage Broker  lic# 316147
M 306-533-4492 | F 306-545-7446| kseifert@dominionlending.ca    
The Mortgage Firm 
lic# 315912
3889 Arcola Ave E, Regina, SK S4V 1P5