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How Does a Reverse Mortgage Work?

Canadian Reverse Mortgage Facts

Everyone on title must both be at least 55 years old or older.

How Much Money Can I Get From A Reverse Loan?

The amount of loan that you can receive varies depending on your age, the house value, the property type and the location of your home. The minimum loan is $20,000. The maximum loan is $750,000.  Also, all three reverse mortgage lenders have a different calculation depending on where the property is located.  I can sometimes get them to match each other’s quotes.

Eligible amounts are determined through an independent appraisal of the property. Other closing costs (similar to any other type of mortgage) associated in obtaining a Canadian Reverse Mortgage may be paid from mortgage proceeds at time funding. This means you would not be required to pay for the closing costs of the reverse mortgage out-of-pocket.

You can get pre-approved for the maximum amount initially, and only have a small amount advanced. If you require more funds at a later date, depending on the lender, you simply call to receive those funds or use their online portal.  You only pay interest on the amount that is advanced … not the amount of the limit that you get approved for.

Facts About Reverse Mortgages in Canada on Taxes & Pensions

All money that you receive for a Canadian Reverse Mortgage is tax-free.

Canadian reverse mortgages do NOT affect any Old Age Security or Guaranteed Income Supplement government benefits you may already be receiving.

You make absolutely NO monthly repayments while you or your spouse live in your home. Other mortgage products require you to make a monthly payment. With a Canadian Reverse Mortgage you do not have to make any mortgage payments.

Do I Keep Ownership of My Home?

You still get to keep the house in your name; you are still on title (just like you would with any other mortgage). When you sell the home the debt is paid through the proceeds of the sale…however you even have the option to ‘transfer’ your reverse mortgage to a new property.

You keep all the equity that is left in your home. 99% of all homeowners have equity in their home when the reverse mortgage loan is repaid. In fact, on average over 50% of the house value is still equity by the time that the Canadian Reverse Mortgage is repaid. In the event of the passing of the borrower, when the reverse mortgage must be repaid the heirs of the estate can obtain a standard mortgage on the property to pay out the reverse mortgage at that time.  Just like they would do if any other type of mortgage was registered on title.

Is My House Protected?

Your estate is well protected. The lender guarantees that you or your heirs will never owe more than the home value.  This is called a No-Negative-Equity-Guarantee.

Save on Taxes! You can use a Canadian Reverse Mortgage to take cash out of the home and put it into investments. All the interest charged on the loan is then tax deductible.

Continue to Canadian Reverse Mortgage Misconceptions

CHIP Canadian Home Income Plan FAQs

CHIP Canadian Home Income Plan FAQs

Is there an age limit for a CHIP reverse mortgage in Canada?

Yes, anyone on title must be at least 55 years old in order to qualify for a reverse mortgage in Canada.  If one or both of you are not yet 55, there is something very similar available, please see this page.

Is there a monthly payment required for the CHIP Canadian Home Income Plan?

No, you can have a reverse mortgage for as long as you wish and never make a payment on that mortgage as long as at least one of the original borrowers lives there.

Is there a maximum amount I can borrow?

Yes, depending on your age, property type, location and the condition of the house, you can borrow  up to a maximum of 55% of the value of your home. If you are a ‘young senior’, you may only be able to access 20% – 35%, which can be disappointing. Contact us to get a quick quote on how much you can access.

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What if the Reverse Mortgage loan balance eventually exceeds the market value of my home?

No matter what,  the loan balance will not ever exceed the fair market value of the home. In other words you can never owe the lender more than the value of the home. They guarantee this in writing. In fact, in 99% of their files there is a surplus of equity remaining at the end of the loan.

What if I have bad credit? Will I still qualify for a Canadian Home Income Plan reverse mortgage in Canada?

Yes, if you are the right age and your house is in reasonable shape then you will qualify for a  reverse mortgage. They might check your credit, but that does not drive the approval.

How do I receive the funds from a CHIP, Equitable Bank or Bloom reverse mortgage?

You can receive the money in one lump sum all at once, or as a pre-arranged supplemental income every month. Or a combination of both. It is entirely up to you.  One of the lenders even offers a mastercard for you to access your funds, at the same mortgage rate!

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Do I have to pay taxes on the money I receive?

No, it does not qualify as taxable income.

Are there restrictions on how I use the money?

No, you can use it for any purpose.

What are the out-of-pocket costs to get a CHIP, Equitable Bank or Bloom reverse mortgage?

You will need to pay an appraisal fee that can range from $300 to $500 depending on your location

Are there any additional fees?

Yes,  each lenders has a flat fee that ranges from $1595 to  $1,795 and includes conveyance, closing and administrative costs, which will be deducted directly from the proceeds of your  reverse mortgage. Sometimes one of the lenders will have a *special* that I can use to get them to match each other.  You will also be required to obtain Independent Legal Advice (ILA) which varies in cost depending on pricing in your area ($300 – $700).

What is the interest rate on a reverse mortgage

Just like a conventional mortgage, the interest rate varies, depending on the term that you choose. They have variable, 6 month fixed, 1 yr fixed, 3 yr fixed, 5 yr fixed, etc Contact us to get current rates and compare to the rates of conventional mortgages and lines of credit. And also, each reverse mortgage lender will have slightly different rates at any point in time, so it is worthwhile to have a specialized broker do a compare/contrast for you.

Why is the interest rate on a reverse mortgage higher than a conventional bank mortgage?

You are paying a small premium on rate for the luxury of not making a payment and also not having to qualify under the federal government stress-test with respect to income . Even with the higher interest rates, there are still only three lenders in Canada wishing to offer this type of mortgage, so that does indicate why the value proposition of not receiving payments is not very attractive to investors.

No obligation quote for all three: HomeEquity Bank’s CHIP reverse mortgage, Equitable Bank’s reverse mortgage and Bloom’s reverse mortgage

Fill out our online form for a quote on all three!

Rebecca is even considered the expert on Canadian Home Income Plan (CHIP) in China!

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