What is a Reverse Mortgage?

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 is also no underwriting for credit or income/debt requirements. The borrower’s ability to make payments, typically an important concern with most banks, is simply not an issue here.

Never make a monthly mortgage payment with CHIP, Equitable Bank or Bloom reverse mortgages in Canada.

There is a lot of misinformation out there on the internet regarding CHIP, Equitable Bank and Bloom reverse mortgages,  in Canada…. 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 the 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 lenders are Schedule 1 banks that are regulated by the federal government. All reverse mortgages in Canada 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 CHIP, Equitable Bank or Bloom reverse mortgage, you make no payments, and then eventually over time owe more than you borrowed because the interest is being added to the balance. These reverse mortgage lenders also offer an optional option to make some prepayments, which varies among them.

The most attractive feature of a Canadian CHIP, Equitable Bank or Bloom 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 CHIP 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.

With CHIP, Equitable Bank and Bloom reverse mortgages in Canada, theloan balance will not exceed the fair market value of your home.  This is called a No-Negative-Equity-Guarantee and is written right into the contract.

Regardless of market fluctuations, these lenders guarantee, 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 (compared to other forms of private lending, for example) reflect the confidence that a Lender feels in their exposure to loss due to market value fluctuations. Entering into a CHIP, Equitable Bank or Bloom 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.

There is some need to do comparisons

There are three national providers of reverse mortgages:  HomeEquity Bank’s CHIP reverse mortgage, Equitable Bank’s reverse mortgage and Bloom’s reverse mortgage.  The general themes are similar, but there are some marked differences among them.  There is no reason to negotiate with these lenders unrepresented when a senior mortgage specialist can help you determine what’s best, at absolutely no cost to you. In fact, because of my high volumes with these lenders, I can often get them to match each other’s rates or advanced funds.

Rates are of course higher at all three, than those for a regular mortgage, as the bank is offering to lend money and not receive a payment for an unpredictable period of time. The premium you pay on the 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 among the three national reverse mortgage lenders…… and there are lots of choices besides the reverse mortgage, we can help you determine what suits your particular situation the best.

What is a Reverse Mortgage from CHIP, Equitable Bank or Bloom?

Reverse Mortgages enable Canadian homeowners over 55 years of age to access up to 55% of their home’s value without having to sell or move away. As mentioned, there are three lenders in Canada who provide this type of mortgage

The money you receive under from a reverse mortgage is tax-free and can be used for any purpose you like, including:

• To handle unexpected expenses
• To pay off debts
• To help your children or grandchildren
• To improve your day-to-day standard of living
• To make a special trip or purchase

How Does a Reverse Mortgage Work?

A reverse mortgage is just a regular mortgage loan secured against the value of your home, with optional payments.  Any Canadian homeowner over the age of 55 with a primary residence can qualify for this type of loan. 

With a Reverse Mortgage from CHIP, Equitable Bank or Bloom, no health check is required, and the application process rarely takes longer than 3-4 weeks. In fact, the application can go a lot faster if your paperwork is in order and the mortgage is relatively straightforward.

• Application. Start by completing the application form with the help of one of our specialists. You’ll need to provide personal information, proof of age, and documents to support your home ownership.

• Appraisal. An independent appraisal will be assigned to determine your home’s current market value. This appraisal will determine how much equity you can access

• Funds disbursement. Once your application is approved and the appraisal is complete, you will receive the funds either as a lump sum, through regular monthly payments, or as a line of credit. The choice is yours.

• Repayment. With a Reverse Mortgage, you won’t have to make monthly payments—instead, the loan will need to be repaid in full when you sell the home, move out, or pass away. At this time, the lender will receive the loan amount plus any interest from the proceeds of the home sale.

Benefits of a Reverse Mortgage

Obtaining a Reverse Mortgage from CHIP, Equitable Bank or Bloom is a great opportunity for older Canadians to receive much-needed funds without selling their home. Here are the key benefits of this type of loan:

• Keep your home. You get to maintain homeownership while accessing your home’s equity. It will continue to appreciate in value over time.
• No payments. No monthly payments are required. The repayment is made when the homeowner moves or sells the property.
• Flexible use of funds. You can use the funds for various financial needs, including other debt repayment, home renovations, travel, supporting family members, and more.
• Relieve financial stress. The funds received through a CHIP mortgage will relieve financial stress, providing you with peace of mind and financial flexibility.

Frequently Asked Questions About Reverse Mortgages

With a Reverse Mortgage, do you retain the title of your home?

Yes, you will retain the title and ownership of your home. However, you will be responsible for paying off the loan plus interest in case you decide to move or sell your property.

Are there any limitations as to what someone can do with the money?

No, you may use the funds as you wish. Many people use the proceeds to cover large expenses like home renovations or buying a car, while others choose to pay off other debts.  Yet others would like to help children or grandchildren.

Are there any fees or costs associated with obtaining a Reverse Mortgage?

Similar to other mortgage products, a Reverse Mortgage will require an appraisal, which means that there will be an appraisal fee. There is also legal fees and you are required to obtain Independent legal Advice. All three lenders also have an administration fee which varies slightly from $995 to $1795.

Discover which Reverse Mortgage is Right for You

With a reverse mortgage, you can easily unlock the equity in your home and gain financial flexibility without selling or moving away. Get in touch with us today to learn more about how the reverse mortgage from Equitable Bank, CHIP and Bloom differ from each other,  or discuss other ways to financially support your retirement years.

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