In a nutshell, a CHIP mortgage or “reverse” mortgage is a mortgage that is secured by the client’s principal residence and as long as one of the client’s lives in the house, it never has to be repaid, not even the interest. “CHIP” stands for “Canadian Home Income Plan” by the way; however the lender who does these types of mortgage in Canada is called Homequity Bank.
It is probably easiest to explain using an example: Let’s assume a husband and wife aged 70 and 69 respectively live in a home that has been appraised at $500 000 and has no mortgage on it right now. Based on the value and their ages, CHIP would allow them to borrow up to $195 495 against the house. They do not have to take the full amount and can in fact choose a monthly income supplement. For example they could choose $50 000 in a lump sum and then $1 000 per month for the next 140 months.
So long as one of the applicants remains in the house, they never have to make a payment. If one of the spouses moves to a retirement home and the other stays in the house, they still don’t have to make any payments. Snowbirds also qualify……so long as the house remains your primary residence.
Here are some of the “requirements”:
- Minimum age 55 for all applicants
- Must be principal residence (no rentals)
- All persons on title must be on mortgage
Two GREAT features of CHIP MORTGAGES:
1. NO INCOME VERIFICATION: Since the mortgage is not expected to be repaid until the house is sold or until the last homeowner leaves the property, no income verification is necessary. This is a great advantage to those who are “asset rich” but don’t show much income
2. NO CREDIT REQUIREMENTS: Many retirees have little or no credit history which makes it very difficult to get a loan or mortgage. With the CHIP mortgage no credit is no problem!
1. Does the bank own my house? No, this is registered against the title of the home the same as any other mortgage. The “bank” cannot force the sale of your home provided one of the applicants still resides in it.
2. Will the equity disappear in my house? CHIP mortgages are designed to limit the risk of the mortgage amount exceeding the value of the home. Your home is still increasing in value and the CHIP mortgage is only a portion of the value of your home so in most cases, the equity in your home continues to increase.
3. What is the cost to set up a CHIP mortgage? There is a fee ranging from $995 to $1495 to set up the original mortgage, plus you must pay for an appraisal and a lawyer to register the mortgage. This is clearly explained in the application process so you will be fully aware of all costs prior to setting up the mortgage.
4. What if I have an existing mortgage? A CHIP mortgage can still be set up however you must pay off the existing mortgage with the funds advanced. This is a common strategy for those who are about to retire and don’t want to make mortgage payments anymore.
If you have any other questions, please contact a Dominion Lending Centres mortgage professional.
Courtesy of Brian Mill, AMP – Neighbourhood DLC