A growing number of Canadians are looking to their homes as a resource for cash. Whether it is to pay for much needed expenses, or to reduce debt – many Canadians are turning to CHIP (Canadian Home Income Plan) reverse mortgages. Although more and more people are using reverse mortgages, especially in their senior years, it is not without its controversy.
A Few Facts About Reverse Mortgages
- The financial product is provided by HomEquity Bank (the only provider of reverse mortgages in Canada).
- It is a loan secured against the value of your home.
- You must be 55 or over to qualify.
- Rates range from 3.95 per cent to 5.49 per cent (as of November 2015).
- The amount you are able to borrow varies dramatically based on location, type of housing, your age and gender and the amount of debt you have.
Would it be right for you? The following are a few advantages/disadvantages to a CHIP Reverse Mortgage:
Advantages of a Reverse Mortgage
- Payments from a reverse mortgage are tax-free income.
- Does not need to be repaid until you sell your home or you and your surviving partner passes away.
- You have the freedom to eliminate monthly payments.
- The amount you owe can never exceed the value of your property.
- Funds can be received as a lump sum, regular payments or a combination.
- Considered a viable option for older clients who would not otherwise be able to stay in their home.
Disadvantages of a Reverse Mortgage
- Penalties for early repayment – If you repay the reverse mortgage early, the penalty is 5 per cent in the first year, 4 per cent in the second, and 3 per cent in the third. After the third year, the penalty is three-month’s interest.
- Reverse mortgages are more costly than conventional lines of credit. There are start-up fees and higher interest rates. Fees can easily reach $2,000 to $2,500 which is deducted from the principle received.
- While your home may continue to appreciate in value and offset some of the interest costs associated with the loan, the interest will still rapidly accumulate.
- There are also requirements to keep the house in good shape.
Reverse mortgages are only one of the many different financial products available out there. If you would like recommendations of mortgage lenders or wish to discuss your real estate needs, feel free to give me a call at 416-921-1112 – I am happy to help you.