Reverse Mortgage Secrets Revealed
- The Truth About CHIP In Canada
What no-one else is telling you about reverse mortgages in Canada...
Written by an independent expert and Chartered Accountant - who was named as one of the top Mortgage Professionals in Canada in 2017 because of this work.
A Quick Video Explanation
In just 2 minutes, our video will explain the reverse mortgage basics to you - you can then download our free guide - once you're done - to get a full perspective.
Learn The Truth And The REAL Facts
There is a lot of bad information out there about reverse mortgages in Canada - that's why we created our free guidebook to clear up everything you need to know.
Get The Real Pros And Cons
In addition to this, you'll learn:
1. All the reverse mortgage positives and negatives - including any pitfalls.
2. How reverse mortgages compare to a Home Equity Line Of Credit (HELOC) loan.
3. All the facts that you must be aware of before making your decision.
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What Is A Reverse Mortgage?
A reverse mortgage is a specialist home loan only available to people in Canada over the age of 55. It is called this because - unlike other mortgages - it doesn't require regular monthly payments. The key features:
- You must be over 55 years old to qualify.
- No monthly payments are required.
- The maximum amount you can borrow is 55% of the value of your home.
- Interest is charged but added to the amount owed, instead of being paid.
It is specifically for seniors - or those getting closer to retirement - hence the age restriction.
What Are The Key Features?
There are 3 key things to consider when thinking about a reverse mortgage:
1. There Is No Monthly Payment
Because there are no monthly payments, you need to factor in home equity growth and other calculations into your decision.
2. The Interest Cost Is Added To The Loan
Because interest is added to the loan, you need to factor in how much this grows over time vs growth in your home equity.
3. Canada vs USA - Beware
Please note that the above information relates to Canada. For example, the age to qualify for a reverse mortgage in the USA is actually 62. This is why our free guide is a must read, as many people get confused between Canada and the USA - the two products are very different.
If you have been reading any information that references the age as 62, or uses terms such as 'HUD', 'HECM', 'FHA' or 'churning' - then you have been reading information that relates to the U.S. product - none of these terms have anything to do with Canada. See our free article on Canada vs the USA for more information.
You can also see the definition on the Government of Canada website or download our free guide below to learn more about this.
How Exactly Does This Work In Canada?
The amount that can be borrowed is no more than 55% of the value of your home. But what most people don't know is that this amount is actually tiered - so at 55 years of age you would not qualify for the full 55% but rather a smaller percentage.
Only if you're much older do you get the full 55%. This is deliberate, so you don't lose all your home equity.
There is one central goal to this product: to allow you to stay in your home for life.
Upon all homeowners passing away, the lender will then recover the value owed - including both the amount borrowed plus interest - through your Estate. This will be either by the house being sold or remortgaged by your heirs. So, this is not a 'free lunch' and the lender will make money on the mortgage.
It is however a 'win-win' in that the lender is delaying the money they make until the homeowners pass away - allowing you to live in your home through retirement and for as long as you wish.
What About An RBC Reverse Mortgage Or Other Lenders?
At present, the "Big 5" banks - RBC, BMO, CIBC, Scotiabank and TD do not offer this product in Canada. The reason is that these are a very specialist lending product that requires years of investing and input before the bank may see any returns.
At present, it is only offered by HomeEquity Bank - with their CHIP reverse mortgage (official website - is www.chip.ca) who are a regulated and Schedule I chartered bank in Canada - as well as Equitable Bank (official website is www.equitablebank.ca), who just launched their own version of this product in January 2018.
Manulife also have a product that can work in a similar way - please contact us if you are interested in learning more.
Otherwise, any other information you see offering this from other lenders is not accurate - these are the only lending options for this. I would be careful of anyone pretending that any other such products exist in Canada.
What About Interest Rates?
Rates change over time - like any mortgage loan. However, with this product in particular you must think about more than just the rates. For example, one thing that you absolutely must consider is home equity growth - this is what can help you keep (or even increase) your home equity over time - despite having taken out one of these mortgages. Yes, you read that right - many people are actually increasing their home equity because the value of their home increasing.
This decision is really and ultimately a question of home equity growth rates (growth of the value of your home) vs interest rates. That is, your home equity growth can often offset the interest completely.
For more on this and where the current rates lie, check out our reverse mortgage rates page.
Other Frequently Asked Questions
Click on the question to reveal the answer.
You can still take this out if you have a mortgage on your property. It would be the exact same process that you'd go through in taking your mortgage to another lender - they will simply replace your existing loan (essentially moving it to another lender). You'd then get to keep any excess money available. Check out this article on the top misconceptions for more like this: https://www.reversemortgagepros.ca/top-8-misconceptions/.
One crucial thing to note is that your entire mortgage must be paid off using the borrowed amount - so you must qualify for enough money to do this. The easiest way to explain this is with an example: if you have an existing mortgage of $100,000 and you take out a reverse mortgage of $200,000 - then $100,000 will be used to pay off your existing mortgage and you'd get to keep the extra $100,000. Unfortunately, you don't qualify if you can't get enough money to pay off any existing mortgage.
For more on what impacts how much you qualify for, see the 'How Much Money Can I Get' section below.
Yes, they are available all across Canada - with the exception of the Yukon. The most common areas for people to take this out are Ontario, BC and Alberta. Toronto and Vancouver are the most common cities where this product is taken. This is largely because these are the most populated Provinces and cities in Canada. However, we have helped seniors in almost every single Province. You can rest assured that we have all the information you need our free information pack - which you can download below.
CHIP stands for the Canadian Home Income Plan (CHIP) - which was previously what this product was called. The name was changed to the 'CHIP reverse mortgage' to more accurately reflect the type of loan this is (it is a mortgage, after all). The goal remains the same, however, to help provide seniors with additional income in or entering their retirement years, by tapping into their home equity. The name change was largely to bring the product in Canada in line with the the product in the USA - which may have backfired as now people get the two confused.
For more on the history of HomEquity Bank and this product, check out this article.
Equitable bank also recently launched their own reverse mortgage in January 2018 - theirs is very similar to the CHIP product.
There are 3 key factors in deciding how much you qualify for under a CHIP reverse mortgage: (1) Your property value, (2) Your age and (3) The property type. You may qualify for as much as 55% - that is the maximum available.
Unlike other bank products, your credit level or credit score are almost a non-factor in the decision. This is because the lender is more concerned about your property value and the amount your home is worth, rather than your credit - because you are not actually repaying the mortgage. In this sense - since there are no repayments - your credit is almost completely unimportant.
If you have done any research about this product, you will have noticed that there are not many unbiased, impartial and objective guides out there for a savvy senior. Something that shows you the real downsides, as well as the upside.
That's why we created this guidebook with the real information you need to know - to help make your decision.
In addition to this, there is also a lot of confusion and misinformation out there - this is something we wrote in detail about in our article examining the bad reputation of this mortgage product. For example, many people out there are confused about whether or not they could potentially lose their home.
(Let me set this one straight off the bat - I can tell you right now that the answer is no - never under any circumstances will you or any Canadian lose your home. But the mere fact that people are confused by this and asking these questions is a testament to how poor the information out there is.)
So I created and wrote this free guide so that you can educate yourself and decide if this is the right financial solution for you during your retirement years.
We have been working on this for months - putting together the information and updating it as we are asked more questions and get more feedback about this loan type. We have also used our contacts with lenders and experience as mortgage agents to ensure that all the information contained inside is accurate. I genuinely believe that there is no other guide to this product as comprehensive as this.
The guide is fresh – we update it regularly – and our goal has been to include absolutely everything there is to know about this kind of home loan.
If you feel like we have missed something, then let us know - we are always writing new articles and sending out new information on a regular basis.
If you already know quite a bit and are pretty sure that this might be a good option for you, we have you covered too.
We offer a free assessment - where a dedicated mortgage professional and Chartered Accountant will look at your details and advise you if this is the right loan for you. As the name suggests, it only takes 90 seconds of your time.
I am a licensed mortgage agent with Dominion Lending Centres Edge Financial – FSCO License #10710. I am also a certified Chartered Accountant. In 2017 I was also named one of the top Mortgage Professionals in Canada (under 35) by Canadian Mortgage Professional magazine.
Our mortgage brokerage is independently owned and operated – this means that you get independent, objective and professional advice on all of your financial needs. We don’t work for any bank or lender – you are our client. I personally created this website - so that it could a hub and provide all the information and advice that anyone would ever need.
We are also affiliated with Dominion Lending Centres – the number one company in Canada for any kind of mortgage loan.
Just so you have it in black and white: our guide, our 90 second assessment and all the advice and recommendations we provide you are completely free - you will never pay us a penny ever for any of our advice.
If you are interested in the costs and fees for the product itself, check out our article on costs and fees.
The guide is a PDF file (opens with Adobe or any PDF or eBook reader). I will email it to you immediately. I will also continue to send you other free tips, tricks and advice to help you along the way – you can unsubscribe any time if the guide is more than enough for your needs.
If you would like something sent in the post, we can arrange that too. Just hit the 'contact' button at the top of this screen to get in touch with us.
This guide outlines some of the negatives - as well as the positives. Of course this product isn't the right fit for everyone - but as independent and licensed mortgage agents, we can help you to decide if it is the right fit for you. That is what this free guidebook is intended to do.
We have even written an article examining the alternatives in more detail.
Whilst this is much easier to get than any other kind of home loan, since we are still talking about lending large amounts of money, this does not make it a walk in the park. Both the companies that offer this - HomEquity Bank and Equitable Bank - are Schedule I banks (the highest level in Canada - the same as RBC, BMO, CIBC, Scotiabank and TD) - so they do require some paperwork. It will not be as intense as a traditional mortgage and your credit score and income are almost not a factor at all - but they do need to gather basic information before they will lend the money. For example, even though they do not rely on it as such, they will still pull your credit score - as they are required as a Schedule I lender to show some form of due diligence. For more on this, please get in touch with us.
If you have any further questions then please let me know! I hope you found some value from this.
- Michael (Mich) Sneddon CPA, CA
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Last updated: 7th July 2018