Answers to the most Commonly Asked Reverse Mortgage Questions

This guide will answer the most commonly asked questions about reverse mortgages, in particular, the CHIP Reverse Mortgage offered by HomeEquity Bank.

Click here to read a recent review of the reverse mortgage services I provide.

What is a CHIP Reverse Mortgage? How Does it Work?

A CHIP reverse mortgage is a type of mortgage in which you don’t have to make monthly mortgage payments. You can choose to make payments if you wish but that’s completely optional (the vast majority of people do not).

After you are approved for the mortgage, you choose to receive all the money you’re eligible for in a lump sum, in periodic installments, or a combination of both.

You spend the money on whatever you want.

Interest accumulates on the mortgage.

You pay off the mortgage when:

  • You pass away.
  • You move out of your home.
  • You sell the home.

Who is eligible for a CHIP Reverse Mortgage?

To be eligible for a CHIP reverse mortgage:

  • You must be at least 55 years old.
  • You must live in the home.
  • Your home must have a minimum value of $200k.

Who is a CHIP Reverse Mortgage Suitable for?

A CHIP reverse mortgage is meant for people who are retired or nearing retirement and who intend to live in their homes for the long term.

It applies to those who have a lot of equity in their home and want to access it (and use the money for themselves or to give to others).

For these people, accessing the equity by refinancing or getting a home equity line of credit is not an option as they do not have enough income to make monthly payments.

It is not intended for people who plan to sell their home in the near future.

Why Would Someone get a CHIP Reverse Mortgage?

People get reverse mortgages for various reasons. For example:

  1. They want to supplement their monthly retirement income.
  2. They want to make a large expense e.g. buy a car, go on a dream vacation, or renovate their home.
  3. They want to give their children an early inheritance. Many home owners have a lot of equity in their home and want to help their kids financially but cannot access that equity in order to help them. This is one of the biggest problems that a reverse mortgage solves.
  4. They are in some financial distress and want to pay off debts so they can live in retirement stress free: with no debts and with a monthly source of income.

How Much can you get from a CHIP Reverse Mortgage?

You can get up to 55% of the value of your home in a CHIP reverse mortgage. It depends on the value of your home, its location, and your age.

In general, the older you are, the more you can get for the mortgage. Here’s a rough guideline:

  • If you are 55 years old, you can receive about 20-30% of the value of your home.
  • If you are 65 years old, you can receive about 40% of the value of your home.
  • If you are 75 years old and older, you can receive about 55% of the value of your home.

Who owns the home in a CHIP Reverse Mortgage?

You do. It’s no different than any other mortgage. Even though you have a mortgage on your home, it’s still yours. Your name is the only name on the title of your home.

What are the pros and cons (benefits and downsides) of a CHIP Reverse Mortgage?

Pros / Benefits:

  • You don’t have to make monthly mortgage payments.
  • The money you receive is tax free.
  • You get to stay in the comfort of the home you love.
  • You can do whatever you want with the money e.g. renovate the house, provide an early inheritance for family members, etc.
  • You still own the home so if the value of your home increases, your equity in the home increases. That means you’ll still benefit from your home’s appreciation over time if you eventually decide to downsize or move out.

Cons / Downsides:

  • You will pay a higher interest rate compared to standard mortgages.
  • This is the big one: when it comes time to pay back the mortgage, there may be less inheritance money from the sale of your home to pass on to family members. In other words, there may be a loss of equity in your home when it comes time to sell it. Since this is the biggest downside to a reverse mortgage, it requires further explanation.

The loss of equity in your home is the main downside to a reverse mortgage. Since you don’t make monthly payments, the principle amount of the mortgage doesn’t get reduced while interest will accumulate for the entirety of the mortgage.

Theoretically, when you sell your home, there could be no equity left in it!

That’s why, to counter this, there is a scale to how much you can get: the younger you are, the less of a mortgage you can get. This ensures that there is still equity in your home when it’s time to pay it off.

So if you’re 55, get 20% of the value of your home for the reverse mortgage, and pay it off after 20 years, there will still be about 60% equity in your home when you sell it.

If you were to instead get 55% (instead of 20%) of the value of your home for the mortgage and paid it off after 20 years, there would be no more equity left in your home.

The sliding scale is designed to reduce the possibility of you running out of equity in your home.

That’s really all the cons. There aren’t as many cons as people might expect because a reverse mortgage is really no different from a regular mortgage. For example, a reverse mortgage may prevent you from being able to get a home equity line of credit (HELOC) but that is true of a regular mortgage too. So it’s not listed as a con here.

Most of the fears people have about reverse mortgages are because of stories they hear from the United States. Reverse mortgages in Canada do not work the same way as they do in the U.S.

How Much Does a CHIP Reverse Mortgage cost?

The costs associated with getting a CHIP reverse mortgage are:

  • $1795 for legal fees. This is for legal services that you need just as if you were obtaining a regular mortgage.
  • You may be asked to get independent legal advice about getting the reverse mortgage. This is separate from the $1795 for the real estate legal fees. This legal counsel is to ensure that you understand what the reverse mortgage process is and that it is right for you.
  • You may also have to pay an appraisal fee for your home. This can cost about $300-500 depending on things like the size of your home.

How long does my Estate have to pay off the Mortgage?

If you pass away, your estate will have up to 12 months to pay off the loan.

If you are going to a nursing or retirement home, your estate has 6 months to pay off the loan.

What if the amount of the Mortgage ends up being Greater than the Value of the Home?

HomeEquity Bank guarantees that at the end of the mortgage term for a CHIP reverse mortgage, you will never owe more than the fair market value of your home.

So if your home does depreciate to the point that you owe more than what you can sell the home for, HomeEquity Bank will take the loss. You will not be required to make up the difference.

HomeEquity Bank can do this because they are confident that this will be a rare event. Real estate appreciates over time. Because of this appreciation, 99% of HomeEquity’s clients make money once their mortgage is repaid. For that to not be the case, something drastic would have to occur. HomeEquity is comfortable taking their chances that such a rare event will likely not happen.

CHIP Reverse Mortgage Testimonials

Click here to read a recent review of the CHIP Reverse Mortgage services that I provide. 

Click here to read some general CHIP reverse mortgage testimonials.

If there is a question I haven’t answered below or you want a free estimate on how much you could qualify for, please feel free to contact me directly!

Joseph Clavero
Call or text: (416) 533-8522
Email: JosephClavero@DominionLending.ca