After years of taking care of monthly mortgage payments, most Canadians find the majority of their net worth is more or less locked away as equity in their homes. If they do find themselves needing money, it can often be an arduous and complicated task. However, the reverse mortgage may offer a solution to that situation. HomEquity Bank introduced the CHIP reverse mortgage in Canada and it was originally known as the Home Income Plan. The plan was actually created in 1986 as an annuity-based solution which is designed to help Canadians aged 55 and older access their home’s equity.
What is a Reverse Mortgage?
A reverse mortgage is basically a loan which is secured by your property or home. However, there is a difference since you aren’t required to make any mortgage payments on the principal and interest as long as you or your spouse still resides there. You just need to make sure the property is in good condition and well maintained while still paying your property insurance and property taxes. This is a financially sound mortgage which reduces the risk to Canadian homeowners. You will retain full ownership of the home and won’t owe above the fair market value of it when it comes time to sell or you pass away and your estate sells the home.
How Reverse Mortgages Work
All major Canadian banks recognize the reverse mortgage, as well as some of the nation’s smaller banks along with financial planners and credit unions. So, rather than selling your home to access your equity, some of the equity can be turned into cash. Participants in a reverse mortgage in Canada can take up to 55 per cent of the value of their home. The cash can be received by the homeowner in a lump sum or over a specific period of time as the choice is theirs. In addition, the homeowner can also choose if they wish to repay the interest on a monthly or annual basis or pay the principal and interest off in full at any time they wish.
Benefits of a Reverse Mortgage
Regardless of your current health or income, a reverse mortgage enables Canadians to access the tax-free equity in their home when they need it. The money can be used for emergencies, renovations, vacations, retirement income, investment properties, to pay off debt, for educational purposes or whatever you choose. The amount of money you qualify for will depend on the appraised value of the home as well as your current age. The reverse mortgage is registered on the home’s title, but you always retain the ownership of it. The interest rate is typically higher on this type of mortgage since you don’t need to make an interest payment as long as you reside in the home.
If you’re interested, you can contact us today to learn more about reverse mortgages in Canada. When it comes to a reverse mortgage, you need to be at least 55 years of age and you can borrow up to 55 per cent of your home’s equity. The money can be received in a lump sum or in instalments. The full amount isn’t due until you move, sell the home, or you and your spouse pass away.