Guide

CHIP Reverse Mortgage

Discover how a CHIP Reverse Mortgage can provide retirees with financial flexibility and peace of mind.
This Page Was Last Updated: June 15, 2024

CHIP Reverse Mortgage Rates

What You Should Know
  • A CHIP Reverse Mortgage allows homeowners aged 55 and above to access up to 55% of their home's appraised value.
  • There are no monthly payments, which means you only need to repay the loan when you sell the house, move out, or pass away.
  • Funds received through the reverse mortgage are not considered taxable income, so it won’t affect your Old Age Security (OAS) or Guaranteed Income Supplement (GIS) benefits.
  • Interest on the CHIP reverse mortgage accumulates over time and is added to the balance owed, but you will never owe more than your home is worth, no matter how long you live for.

What Is a CHIP Reverse Mortgage?

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A CHIP Reverse Mortgage is a loan that allows homeowners aged 55 and older to access the equity in their homes without ever having to make monthly mortgage payments. Instead, the loan is repaid when the borrower sells the home or moves out permanently. The maximum loan amount is based on the home’s value, the homeowner's age, and current reverse mortgage interest rates and can be for up to 55% of your home’s value.

How a CHIP Reverse Mortgage Works

How a reverse mortgage works is simple. Instead of making monthly payments to a lender, the lender makes a one-time payment (and potentially scheduled future payments) to you. This payment, up to 55% of your home’s value, is received tax-free as a lump sum, meaning you will get a large amount of cash in hand. With other CHIP reverse mortgage types, you could also opt to receive monthly or quarterly payments instead. The best part? You remain the owner of your home, and you can use the funds however you see fit.

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The loan balance increases over time as interest and fees are added. However, CHIP has a ‘No Negative Equity Guarantee,’ which means the loan balance will never exceed the home's fair market value, no matter how long you live for. If your debt exceeds what you get from the sale of your home, the lender is obligated to forgive the difference. This ensures that you or your heirs will never owe more than the home is worth. As long as the borrower meets the basic requirements, such as staying up-to-date on property taxes and home insurance payments, they can continue to live in their home without worrying about repayment until they move out permanently.

Who Can Apply for a CHIP Reverse Mortgage

To qualify for a CHIP Reverse Mortgage, you must meet specific eligibility criteria:

  • You must be 55 years of age or older.
  • If you have a spouse, they must also be 55 years of age or older.
  • Your home must be your primary residence and be located in Canada.
  • Your home must have an appraised home value of at least $250,000.

Generally, the older you are, the more equity you can access. Use a reverse mortgage calculator to estimate how much you could borrow. There isn’t a health check required.

CHIP Reverse Mortgages are available in all provinces but not for homes located in the Yukon, Nunavut, or Northwest Territories.

Is there a minimum income requirement for a CHIP Reverse Mortgage?

Absolutely not! The loan amount is based on the value of your home and your age, making it an ideal option for retirees or those with limited income (ideal for those who are house-rich, cash-poor).

Benefits of a CHIP Reverse Mortgage

Why consider a CHIP Reverse Mortgage? Here are some of its key benefits for retirees:

  • No monthly mortgage payments: This is perhaps the most significant advantage for many seniors. Without having to make monthly mortgage payments, seniors have more financial flexibility to use their money toward other expenses or investments.
  • Access to additional cash flow: A CHIP Reverse Mortgage allows retirees to tap into the equity in their home without having to sell it. This can provide a much-needed boost in cash, especially for those who may not have enough savings or pension income.
  • No impact on OAS and GIS payments: Since the money received from a reverse mortgage is not considered income, it will not affect eligibility for government benefits such as Old Age Security (OAS) and Guaranteed Income Supplement (GIS).
  • Flexibility in how funds are received: Depending on their financial needs and goals, borrowers can choose between a lump sum with CHIP Reverse Mortgage or regular monthly or quarterly payments with CHIP IncomeAdvantage.
  • No Negative Equity Guarantee: With this guarantee, borrowers will never owe more than their home's fair market value, providing peace of mind for both the borrower and their heirs.

One major benefit of a CHIP Reverse Mortgage is its ability to provide retirees with additional cash in retirement without having to sell their homes. This can be especially beneficial for those who may not have enough savings or pension income to cover unexpected expenses or maintain their desired lifestyle.

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Plus, the money you receive from a CHIP Reverse Mortgage won’t affect your Old Age Security (OAS) or Guaranteed Income Supplement (GIS) payments. That’s because OAS eligibility is based on income, while the money you receive from a reverse mortgage is borrowed, so it is not considered income.

Another advantage is the flexibility that a CHIP Reverse Mortgage offers. Borrowers can choose how they receive their payments and use them as they see fit. This can include paying off existing debts, covering healthcare costs, funding home renovations, or even taking a dream vacation. With the No Negative Equity Guarantee mentioned earlier, you never have to worry about owing more than your home is worth. This also means you won’t be leaving any financial burden on your heirs.

Are CHIP Reverse Mortgages safe?

This is a common question and concern for many individuals considering a CHIP Reverse Mortgage. The answer is yes, CHIP Reverse Mortgages are safe and secure. CHIP Reverse Mortgages are a product of HomeEquity Bank.

As a Canadian government-regulated lender, HomeEquity Bank was the first provider of reverse mortgages in Canada. They have been in operation since 1986 and are dedicated to helping Canadian homeowners achieve greater financial freedom.

With over 35 years of experience providing reverse mortgages to Canadians, HomeEquity Bank and CHIP have a track record of helping thousands of homeowners achieve financial stability during retirement.

Reverse Mortgage Comparison

FeatureCHIP Reverse MortgageHELOCHome Equity LoanRefinancing
Eligibility
No minimum credit score or income requirement. Homeowners aged 55+
Good credit, sufficient equityGood credit, sufficient equityGood credit, sufficient equity
Loan AmountUp to 55% of home valueUp to 65% of home valueUp to 80% of home valueUp to 80% of home value
Repayment
Upon home sale or moving out
Interest onlyFixed regular paymentsFixed or variable regular payments
Interest RatesFixed or VariableVariableFixedFixed or Variable
Benefits
No monthly payments
Flexible borrowingLump sum payout, lower ratesPotentially lower monthly payments

Comparison to Other Forms of Borrowing

CHIP Reverse Mortgage Key Features

  • Eligibility: Homeowners aged 55+
  • Loan Amount: Up to 55% of home value
  • Repayment: Upon home sale or moving out
  • Interest Rates: Can be fixed or variable

Home Equity Line of Credit (HELOC)

A HELOC is a revolving line of credit secured against your home, allowing you to borrow as needed up to a certain limit.

Key Features:

  • Eligibility: Good credit score and sufficient home equity
  • Loan Amount: Up to 65% of home value
  • Repayment: Regular interest payments; principal repayment varies
  • Interest Rates: Variable, often tied to prime rate

Refinancing

Refinancing in a cash-out refinance involves replacing your existing mortgage with a larger one, the difference being the cash you can receive.

Key Features:

  • Eligibility: Good credit score, sufficient home equity, and stable income
  • Loan Amount: Up to 80% of home value
  • Repayment: Regular payments (interest + principal)
  • Interest Rates: Can be fixed or variable

Second Mortgage

A second mortgage, sometimes called a home equity loan, provides a lump sum payout secured by your home equity, with fixed regular payments over a set term.

Key Features:

  • Eligibility: Good credit score and sufficient home equity
  • Loan Amount: Up to 80% of home value
  • Repayment: Fixed regular payments (interest + principal)
  • Interest Rates: Fixed or variable, generally higher than HELOC rates

Personal Loans

Personal loans are unsecured loans that can be used for various purposes, including home improvements or debt consolidation.

Key Features:

  • Eligibility: Good credit score, stable income
  • Loan Amount: Varies
  • Repayment: Fixed regular payments (interest + principal)
  • Interest Rates: Fixed or variable, generally higher than secured loans

Which one should you choose? Here's a quick summary based on different scenarios:

  • No Monthly Payments: If you prefer no monthly payments, the CHIP Reverse Mortgage could be ideal.
  • Lower Interest Rates: If you have a good credit score and prefer lower interest rates with structured repayment, consider refinancing your mortgage.
  • Short-term Needs and Flexibility: If you anticipate fluctuating financial needs, a HELOC offers flexibility with variable rates.
  • Unsecured Borrowing: If securing your loan against your home isn’t an option, personal loans provide an alternative, though at higher interest rates.

Comparing CHIP Reverse Mortgage Types

CHIP offers four types of reverse mortgages: CHIP Reverse Mortgage, Chip Open, CHIP Max, and CHIP Income Advantage. While these options allow senior homeowners to tap into their home's equity, there are some key differences between them. In this section, we will compare and contrast these four types of CHIP reverse mortgages.

Purpose

Each type of CHIP reverse mortgage has its own unique purpose. The main purposes are:

  • CHIP Reverse Mortgage: To access up to 55% of your home's equity tax-free.
  • CHIP Open: To provide a short-term financing solution with the option to repay the full loan amount at any time without penalty.
  • CHIP Max: To give younger homeowners more immediate access to a higher percentage of their home's equity.
  • CHIP Income Advantage: To provide regular, tax-free income payments using your home's equity.

How You Can Access Money

All types of CHIP reverse mortgages have a minimum initial advance of $25,000, except CHIP Income Advantage, which has a lower minimum initial advance of $20,000. However, subsequent advances may only be available for certain types:

  • CHIP Reverse Mortgage: Subsequent advances are not guaranteed, but you may be eligible (with a minimum of $5,000).
  • CHIP Open: Optional advances may be available (with a minimum of $5,000).
  • CHIP Max: Optional advances starting at $5,000 may be available.
  • CHIP Income Advantage: A minimum of $1,000 monthly or $3,000 quarterly.

Top Uses

Depending on your financial needs and goals, each type of CHIP reverse mortgage may be better suited for different situations. The top uses for each are:

  • CHIP Reverse Mortgage: Paying for renovations or eliminating debt.
  • CHIP Open: Bridge financing.
  • CHIP Max: Large, unforeseen expenses or helping your children buy their first home.
  • CHIP Income Advantage: Supplementing retirement income or covering healthcare costs.

Benefits

All types of CHIP reverse mortgages offer the same benefits to senior homeowners:

  • Receive cash tax-free.
  • You maintain ownership of your home.
  • No Negative Equity Guarantee.
  • No monthly mortgage payments are required.

However, there may be additional benefits unique to each type, such as the option to repay the full loan amount at any time without penalty for CHIP Open and potential higher percentages of your home's equity available with CHIP Max.

Considerations

While there are many benefits to using a CHIP Reverse Mortgage, it's important to carefully consider your options before making any decisions. Some things to keep in mind include:

  • Impact on inheritance: Since a CHIP Reverse Mortgage uses the equity in your home, it can affect the amount of inheritance you leave for your beneficiaries. It's important to discuss this with your loved ones and consider their needs as well.
  • Interest rates: As with any loan or mortgage, interest rates will affect how much the loan would cost. While there aren’t many reverse mortgage lenders in Canada, you should still compare reverse mortgage rates between them to know your options.
  • Penalties and fees: Some CHIP Reverse Mortgages may have penalties or fees for early repayment or other conditions. Make sure to carefully read and understand all terms and conditions before proceeding.

Eligibility

All CHIP reverse mortgages require the homeowner to be 55 years or older. CHIP Reverse Mortgage and CHIP Open both require a primary residence with a minimum appraised value of $250,000. However, there are additional eligibility requirements for CHIP Max and CHIP Income Advantage:

  • CHIP Max: Only available in select locations in Canada, and primary residence must have a minimum appraised value of $300,000.
  • CHIP Income Advantage: Primary residence must have a minimum appraised value of $300,000.

Examples of Using CHIP Reverse Mortgages

Let’s take a look at a few hypothetical scenarios to see how CHIP Reverse Mortgages can enhance financial independence for retirees:

  • Scenario 1 - Medical Costs: Mary is a retired widow living on her pension and savings. However, due to unexpected medical expenses, she finds herself struggling to cover her daily living costs. With a CHIP Reverse Mortgage, Mary can access some of the equity in her home, providing her with the financial freedom to cover her expenses without worrying about selling her home or taking out a traditional loan.
  • Scenario 2 - Travelling: John and Sarah are retired homeowners who have always dreamed of travelling but did not have enough savings to do so. With CHIP IncomeAdvantage, they were able to access the equity in their home and receive monthly payments, allowing them to fulfill their travel dreams without worrying about additional mortgage payments. This also gave them peace of mind, knowing they could maintain their desired lifestyle during retirement.
  • Scenario 3 - Tuition: David is a retired homeowner who wants to help his children with their education expenses, as their student aid isn’t covering their full tuition. With a CHIP Reverse Mortgage, he can access the equity in his home and receive a lump sum payment to cover these costs without sacrificing his financial stability.
  • Scenario 4 - Family Support: Susan is a retiree who loves her home and doesn't want to sell it, but she also wants to help her grandchildren with a down payment for their first home. With a CHIP Reverse Mortgage, she can access the equity in her home and provide financial support for her family without having to leave her beloved home. This allows her to maintain financial independence while still being able to assist her loved ones.
  • Scenario 5 - Home Renovations: Mark and Lisa are retired homeowners who want to renovate their home for accessibility purposes as they age. With a CHIP Reverse Mortgage, they can access the equity in their home and receive a lump sum payment to cover these costs without having to dip into their retirement savings or worry about monthly mortgage payments.
  • Scenario 6 - Debt Consolidation: Robert is a retiree with multiple outstanding debts and high interest rates. With a CHIP Reverse Mortgage, he can access the equity in his home and use it to pay off his debts, consolidating them into one loan with a lower interest rate. This allows him to have more control over his finances during retirement.
  • Scenario 7 - Bridge Financing: A widower in his late 60s wanted to move closer to his children and grandchildren but didn't have the funds to do so. He used a CHIP Open reverse mortgage as bridge financing to purchase a new home until he could sell his current home.

In these scenarios, the retirees were able to enhance their financial independence and enjoy their retirement years without worrying about mortgage payments or unexpected expenses. These examples demonstrate how a CHIP Reverse Mortgage can be customized to fit individual needs and goals for financial security during retirement, providing a safety net and improving the quality of life for retirees.

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Cash Rebate Offers

If you're a member of CARP (Canadian Association of Retired Persons) or The Royal Canadian Legion, you may be eligible for a cash rebate.

CARP members may be eligible for up to a $250 cash rebate. It’s paid out at the lesser cost of the home appraisal or $250 cash, paid 90 days after the CHIP reverse mortgage is funded.

Legion members may be eligible for a $500 cash rebate, which will be paid by electronic funds transfer (EFT) to their bank account 90 days after the CHIP reverse mortgage is funded.

Both CARP and The Royal Canadian Legion endorse and recommend CHIP Reverse Mortgage.

Frequently Asked Questions (FAQs)

What is a CHIP Reverse Mortgage?

A CHIP Reverse Mortgage is a loan secured against the equity in your home, available to Canadian homeowners aged 55 and above.

How does it work?

With a CHIP Reverse Mortgage, you can access up to 55% of your home's appraised value without having to make any monthly payments. The loan balance increases over time due to accrued interest, and repayment is only required when you sell or move out of the home permanently.

Is my home still mine?

Yes, you retain ownership of your home with a CHIP Reverse Mortgage. You are still responsible for property taxes, home insurance, and maintenance.

How is the loan repaid?

The loan is repaid when you sell your home or move out permanently. The lender receives the proceeds from the sale, and any remaining equity goes to you or your estate.

What happens if the loan amount exceeds the home’s value?

CHIP Reverse Mortgages are designed to protect homeowners. If the loan amount exceeds the home’s value when it is sold, HomeEquity Bank absorbs the loss, not you or your estate.

Do I need good credit or an income to qualify?

No, CHIP Reverse Mortgages are primarily based on your age and home's value, making them more accessible for retirees. However, you must have enough equity in your home to be eligible. There is also a credit check as part of the application process.

What happens if I want to move or sell my home?

The CHIP Reverse Mortgage balance must be paid in full if you decide to move or sell your home. You can choose to repay the loan yourself, or it can be repaid through the sale of your home.

Are there any fees associated with a CHIP Reverse Mortgage?

Yes, like any other mortgage, there are fees and costs involved with obtaining a CHIP Reverse Mortgage. These may include appraisal fees, legal fees, and closing costs, such as administrative fees.

Can I use the funds from a CHIP Reverse Mortgage for any purpose?

Yes, you can use the funds however you see fit. This could include home renovations, medical expenses, debt consolidation, or simply supplementing your retirement income.

Is it worth considering a CHIP Reverse Mortgage?

A CHIP Reverse Mortgage may be worth considering if you are looking to access funds without monthly payments and want to maintain ownership of your home. However, carefully evaluate your individual financial needs and goals before deciding.

Can I apply for a CHIP Reverse Mortgage if I have an existing mortgage?

Yes, you can still be eligible for a CHIP Reverse Mortgage even if you have an existing mortgage on your home. The new loan will replace the current one, and the funds can be used to pay off any remaining balance.