With the cost of living so high and Canadians living longer, it’s not always easy for seniors to save up, budget appropriately and keep up with the bills. Even with careful financial planning, life happens – and sometimes we just need that little leg up when we’re older to help us achieve our financial goals.
What is CHIP?
The Canadian Home Income Plan (CHIP) is a type of reverse mortgage (loan) that is secured using the equity in your home. It’s available for homeowners aged 55 and over who may be eligible to borrow up to 55% of the value of their home. If you are mortgage-free, then the amount you qualify for will be higher than if you currently have a mortgage on your home.
Getting a grip on CHIP:
There are a few key differences between a CHIP reverse mortgage compared to a more traditional mortgage or loan:
- You don’t need to make any payments on a CHIP loan until you sell your home
It’s true! Unlike conventional mortgages or a home equity line of credit (HELOC), you don’t need to make any payments until your home is sold or you pass away. With CHIP, you can make a yearly interest payment, but only if you choose to do so. What this means is that over time, you will owe not just the principal amount that was borrowed from the home’s equity, but also the interest that has accrued over the years. While that may seem concerning, the good news is that your home’s value is likely to increase over the years, helping offset this added balance when it comes time to sell.
When someone passes away, the amount owing on the CHIP reverse mortgage is deducted from the total estate’s worth, so any beneficiaries would simply get the remaining amount of the home’s value. If, however, there was a living spouse, they would simply carry on as usual until they decided to sell the home.
- Your income is not a factor
The application process is different (and easier) with a CHIP reverse mortgage! When you apply, your current income is not taken into consideration. This means there are no credit checks to go through. Even if you have a very modest income and are living off your Canada Pension Plan or Old Age Security you can still qualify as long as you have built up equity in your home. Since there are no monthly payments to make, your income is just not a concern; what matters is that there is enough value in your home for you to access. Part of your CHIP application does include getting a home appraisal however, and there are fees associated with that.
- Interest rates
Unlike a conventional mortgage, with CHIP, there are no regular payments made by the borrower. In fact, lenders may not get their repayment for 5, 10 or 25 plus years. As a result, interest rates on a CHIP reverse mortgage are slightly higher than with standard mortgages, but most CHIP clients agree that the convenience and comfort of not making payments is worth it.
Are you a fit for CHIP?
Applying for a CHIP Reverse Mortgage is a great option for any Canadian who’s 55 or older and who currently has equity in their home but doesn’t have a high income at present or is perhaps worried about their debt load. The loan amount can vary depending on your current needs, whether you’re interested in doing that much-needed home renovation or repair, want to take a luxury cruise or simply get ahead on your finances or bills; it’s worth it to explore your options. As a certified CHIP advisor, it’s my job to walk you through the process and help you determine if it’s right for you; there’s no pressure or sales tactics involved, ever. Connect with me today at (705) 315-0516 and let’s discuss your financial goals and needs. Together, we’ll find the solution that works for you.