You may already have a good sense of what a traditional mortgage involves: you take a loan for a property you’d like to purchase from a bank or other lending institution and agree to repay that loan at a certain interest rate over a predetermined time period. Over time, you accumulate equity in your property until the loan is paid off entirely.
Now, what about a reverse mortgage? Less commonly-known, a reverse mortgage is a loan secured against the value of your home. It allows you to access some of your home equity (in tax-free cash) without having to sell your home. With a reverse mortgage, you don't need to make monthly mortgage payments. The loan only becomes due when you decide to sell or leave the property.
In order to qualify for the CHIP Reverse Mortgage, issued by HomeEquity Bank across all Canadian provinces, you (and your spouse) must be at least 55 years old and the home must be your primary residence. There’s no minimum income requirement for a reverse mortgage.
The CHIP Reverse Mortgage can be approved for up to 55% of your property’s total value. Your exact loan amount is determined by several factors, which include:
Your property type, the condition of your home and its appraised value (minimum home value of $150,000 is required)
The location of your home
The equity in your home
If approved, proceeds from the reverse mortgage can be distributed to you from the provider in several ways or in a combination:
Receive the money as a one-time lump sum
Receive the money over time in planned advances
Receive some of the money as an initial lump sum with additional advances as you wish (similar to a line of credit)
Instead of making monthly payments, you repay the balance of the loan plus interest when you sell, move out, or leave your property for any reason. You may also have the option to transfer the reverse mortgage to a different property if you move. If you wish to prepay the loan in advance, you may have to pay a penalty (similar to a conventional mortgage).
While the rising loan balance could eventually grow to exceed your property value, you (or your estate) will never be required to pay more than the value of your home.
How do I know if a reverse mortgage is right for me?
If you meet the criteria for a reverse mortgage (i.e. homeowner over the age of 55) and need to improve your cash flow, you may want to consider the CHIP Reverse Mortgage. Some of the most common uses for reverse mortgages and their proceeds include (but are not limited to):
Receiving additional income to help you pay for regular living costs
Consolidating and paying other debts that you may have
Paying for renovations, new cars, or vacations
Funding old-age care
Acquiring funds to help support other family (e.g. children, grandchildren, etc.)
If you have a need similar to those mentioned above, and you meet the qualifying criteria, a reverse mortgage may be right for you.
You may also want to consider some of the primary benefits of a reverse mortgage, which include:
No on-going monthly payment obligations
Proceeds are advanced to you tax-free and not counted as income for tax purposes
No forced-sales or foreclosures as long as maintenance, insurance, and tax fees are maintained
Appreciation on your home value can help offset the borrowing costs and the interest only accumulates on the amount borrowed
Reverse mortgages are easy to qualify for if eligibility criteria are met
If you think a reverse mortgage may be right for you, check out the CHIP Reverse Mortgage from HomeEquity Bank. You can also check your free credit score in minutes and see the financial products available to you.