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Canadian Home Income Plan (CHIP)
Reverse Mortgages in Canada
Understanding a CHIP Home Equity Reverse Mortgage for Seniors
A Reverse Mortgage in Canada is just like most other mortgages, with a couple of important exceptions: it is only available to seniors aged 55 years or older and there are no monthly repayments required to pay back the mortgage. Because there are no repayments, there are also no credit-checks or income/debt requirements. The borrower’s ability to make payments, typically an important concern with most banks, is simply not at issue here.
Never make a monthly mortgage payment
There is a lot of misinformation out there on the internet.... largely because people do an internet search for “reverse mortgage” or “mortgages for seniors” but fail to add the word CANADA or CANADIAN. Our financial system here in Canada, and banking regulations, are very different than down south! When doing your research, be sure you are reading about the Canadian experience. You remain on title to the home, and you can never owe more than the value of the home. As long as you are still living there, you can never be forced to move or sell. These protections are guaranteed in writing, and the lender is a Schedule 1 bank that is regulated by the federal government. All mortgages for seniors are protected by our laws.
When you have a conventional mortgage on your home, you make monthly payments to the bank or lender, and usually owe less than you borrowed at the end of the term. When you have a line-of-credit mortgage, you make interest-only payments, and owe the same principal at the end of the term. With a reverse mortgage, you make no payments, and then eventually owe more than you borrowed, because the interest is being added to the balance. They also offer you the option of paying some or all of the interest once per year, on the anniversary date. This is optional.
The most attractive feature of a Canadian reverse mortgage loan, obviously, is that a senior may carry a reverse mortgage for 5, 10, 15 or even 25 years or more and never be required to make a monthly mortgage payment. Historically, house prices tend to increase. With a reverse mortgage in Canada, the balance of the loan slowly accrues over time... while at the same time the home’s value continues to rise. This process ensures equity in the home over the long term.
Your loan balance will not exceed fair market value of your home
Regardless of market fluctuations, the Canada Reverse Mortgage lender guarantees, no matter what, that the loan balance will not exceed the fair market value of the home. In other words, you can never owe the lender more than the value of the home. Low interest rates in these types of loans reflect the confidence that a Lender feels in their exposure to loss due to market value fluctuations. Entering into a Reverse Mortgage in Canada is a great option for a senior who needs access to their home’s equity but doesn’t want to make payments or be concerned about their debt exceeding the value of their home.
No need to do rate shopping for your reverse mortgage
There is only one national lender that offers reverse mortgages in Canada, so there is no rate shopping to be done. Rates are of course higher than those for a regular mortgage, as the bank is offering to lend money and not take a payment for an unpredictable period of time. The premium on rate is for the luxury of not making a payment, nothing else. If it were an awesome investment for the bank, I think we would see a lot more banks offering reverse mortgages in Canada. We don’t. A loan without payments is simply not something that investors get excited about.
That said, be sure to talk to us about all your options. Email is a great tool to communicate, that way if you want to think about it, you can always review the correspondence and the answers to your questions. It’s nice to have everything in writing for your reference. Speaking or emailing with one of us is a great way to fine-tune what options are best for you...... there are lots of choices besides the reverse mortgage, we can help you determine what suits your particular situation the best.