Reverse mortgages have experienced huge growth over the last few years. This is partly due to the startling reality that almost a third of Canadians are going into retirement with no savings. Reverse mortgages are increasingly being used to boost retirement income. But what is a reverse mortgage, exactly?
A reverse mortgage is a loan that allows you to access some of your home’s equity. Many retired Canadians are house rich but cash poor; they’re struggling financially while sitting on an investment worth hundreds of thousands of dollars. A reverse mortgage allows you to cash in some of that investment, in the form of tax-free money in either a lump sum amount or regular advances – all depending on what suits you and your needs. To help you better understand, here's a video explaining what a reverse mortgage is.
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To help explain this financial solution better, you can think about getting a reverse mortgage like staying in a nice hotel or resort.
When you check into a hotel, you provide a credit card that is used as collateral (security that proves you will pay your bill). You get to enjoy your room, the swimming pool and other amenities, room service and meals in the hotel’s restaurant, and you don’t pay a cent until you leave.
With a reverse mortgage, your home is used as collateral, allowing you to access some of the equity in it. You get to use the money from the loan to improve your lifestyle, pay off debts, go on vacation or renovate your home. And the best part is, you don’t have to pay back a cent until you move out or sell your home.
In a hotel there are people who will happily do lots of things for you, from bringing you the morning paper, to cooking your breakfast and doing your dry cleaning. With a reverse mortgage, you’ll have the extra funds to pay for snow clearers, gardeners and house cleaners, as well as dinners out at your favourite restaurants.
In the same way that a credit card allows you to stay in a nice hotel suite rather than a tiny motel room, a reverse mortgage allows you to stay in your home rather than having to sell or downsize.
With a conventional mortgage, borrowers take out a loan to buy their home and pay back the lender over a period of time. With a reverse mortgage, the lender makes payments to the borrower (the roles are reversed). The amount you receive is tax-free and you don’t have to make any scheduled repayments of principal or interest.
With 93% of Canadians determined to retire at home, while dealing with rising debt and an increased cost of living, a reverse mortgage is one of the best ways to stay in the home you love. You get to boost your retirement income without having to downsize.
Just as you can extend your stay in that nice hotel, thanks to your credit card, your reverse mortgage allows you to stay in your home longer. As with a conventional mortgage, the bank doesn’t take over ownership. You stay on title and own your home until you decide to move out or sell.
By taking out a reverse mortgage, you get to have access to some of the equity in your home now, when you need it, without having to sell or move. Like with a hotel stay, you get to enjoy all the benefits of the extra money now and don’t have to pay for it until you choose to leave.
As with any mortgage, your equity will be the value of your home less the amount of your loan. If you choose not to make any interest payments, the amount you owe will be calculated based on the time you stay in your home and the interest rate of your reverse mortgage.
The chances are that your home will also increase in value (on average, Canadian homes have increased in value by over 5% annually over the last 18 years).
For example, let’s say you take out a reverse mortgage of $200,000 and your home is worth $800,000 (leaving $600,000 in equity). Over five years, if house prices were to increase by just 3% every year, your home’s equity would rise from $600,000 to $650,300.1
Plus, HomeEquity Bank guarantees that you will never owe more than your home is worth when you decide to sell it. In fact, 99% of homeowners have money left over once their loan is repaid.
1 Based on an annual increase in value of 3%, the home’s value would be $927,419 after five years. Based on HomeEquity Bank’s five-year rate of 6.74% (as of Nov. 2018), the loan would be at $277,118 after five years. $927,419 - $277,119 = $650,300 in equity. House prices are not guaranteed to rise every year, however, and could fall in value.
Use our reverse mortgage calculator to work out how much of a reverse mortgage you could qualify for, or call a HomeEquity Bank reverse mortgage specialist now at 1-905-923-0818.
By tapping into some of your home’s equity now, the amount that you may have planned to leave for your children will be reduced, but for many people this is a small price to pay for being able to stay in their home and have financial independence.
Some of our customers even take out a reverse mortgage to provide an early inheritance, which allows them to give a substantial amount of money to their children at a time when they need it, rather than many years from now. This also allows them to see the impact this inheritance can make.
CHIP Reverse Mortgage rates are available in two different formats: fixed terms or variable terms. Variable term rates are determined by the HomeEquity Bank prime rate, which is directly influenced by the Bank of Canada prime rate. A variable rate may fluctuate up or down over the course of the term, which is why it is called “variable”. A fixed term rate, on the other hand, is set for a determined period, which is why it is called “fixed”. The CHIP Reverse Mortgage fixed term rates are available for a sixmonth, 1-year, 3-year or 5-year period. Clients typically prefer longer terms, such as the 5-year, but the choice is yours!
At the end of your reverse mortgage rate term, your renewal rate will be the interest rate that is posted here when your rate term expires. Let’s look at a couple of examples to understand reverse mortgage rates offered by CHIP.
Example 1 – 5-year reverse mortgage interest rate term
You have a home valued at $600,000 and you are approved for a CHIP Reverse Mortgage of $200,000. Remember, the amount we lend depends on several factors, such as your age, home value and location. If you decide to proceed, you will have a choice of reverse mortgage interest rate terms. Let’s say you choose the 5-year term. Your first term interest rate will be fixed at the interest rate found in the table above. At the end of the 5 years, you will check back on this website, and your renewal rate will be what is posted in the table at that time.
Example 2 – Variable reverse mortgage interest rate term
Let’s consider the same example: a home valued at $600,000 and $200,000 in CHIP money. For this example, you decide to take a variable term rate. Your initial interest rate will be the HomeEquity Bank prime rate plus the fixed spread – all outlined in the table above. If the Bank of Canada changes its prime rate, then more than likely HomeEquity Bank prime will change. Your variable rate would then change to the new HomeEquity Bank prime rate plus the fixed spread, which is guaranteed for a five-year period.
If you have any questions about the CHIP Reverse Mortgage rates or if you are interested in understanding more about Reverse Mortgage, you can contact us here. If you have any other questions, feel free to give us a call at 1-905-923-0818.
The freedom to retire in the home you love
Why choose CHIP?
- Get up to 55% of the value of your home
- Stay in your home
- Maintain full ownership and control
- Free yourself from monthly mortgage payments until you choose to move or sell
- Option to make advance interest payments
Your retirement, your way
- Pay off debts
- Renovate your home
- Take care of unexpected expenses
- Help the ones you love
- Enjoy the retirement you deserve
- Purchase a vacation property
How to apply
The process is simple
1. Contact your broker
Contact your mortgage broker for more information about CHIP Reverse Mortgage.
2. Get an appraisal
Once you decide to proceed, your mortgage broker will help arrange for an appraisal of your home.
3. Fill out an application
Once we receive the appraisal, you’ll know exactly how much you are approved for. Just complete a dimple form confirm the amount of money you want, and we’ll answer any questions you may have
4. Speak to a lawyer
Before everything is finalized, we require you to review the information with an independent lawyer of your choice.
$. Get your money
You will receive your tax-fee money as a lump sum or multiple instalments.
What if I have an existing mortgage?
You can use the CHIP Reverse Mortgage to pay off your existing mortgage and free up cash flow for the things that matter to you.
What makes the CHIP Reverse Mortgage different from a Home Equity Line of Credit?
HELOCs are a good short-term borrowing option for people who can pay the interest and loan in the near future. However, HELOCs are callable loans and there exists significant risk of non-renewal or cancellation.
Will I ever owe more than my house is worth?
You keep all the equity remaining in your 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.
What fees am I responsible for?
There are one-time fees to arrange a reverse mortgage. Appraisal fees, a fee for independent legal advice, as well as our fee for administration, title insurance, and registration. Many of these fees are common with a conventional mortgage. With the exception of the appraisal fee, all fees are paid for with the funding dollars.
Should I consider this a loan of last resort?
No. Many financial professionals recommend a reverse mortgage to homeowners 55 and over who prefer to stay in their own home, want to eliminate their monthly mortgage payments, and supplement their monthly income with tax-free funds.