Everything You Need To Know About Reverse Mortgages
Wouldn’t it be nice have access to money to be able to have money to be able to do the things you love? Having the ability to enjoy your Golden years with the freedom to pursue things you truly love takes planning. Like staying in your home for as long as you would like. Counting off your bucket list. Travel – either by taking cruises or vacationing somewhere warm and exotic. Enter in a CHIP Reverse Mortgage! A Reverse mortgage is a simple and sensible way to access the value of your home’s equity and turn it into cash and allow you to enjoy retirement life on your terms.
- Pay off Debts
- Handle unexpected expenses
- Help children or grandchildren
- Improve your day to day standard of living
- Make special trip or purchase
A CHIP Reverse Mortgage is a loan secured against the value of the home and can easily be equated to a line of credit. With this mortgage loan, you are not required to make regular mortgage payments. By not making payment your mortgage loan balance will increase because of the monthly interest accruing. You could though, if you wish make interest and principal payments monthly, or just interest payments so that the mortgage balance would not increase.
Most borrowers pay the mortgage out when they decide to sell the home. As with all mortgages there are conditions of a Reverse Mortgage. The homeowner is required to keep the property in good condition and pay their property taxes and have the property insured. All the money accessed through your CHIP Mortgage is tax free.
The main qualifications an applicant must meet in order to qualify for this type of mortgage are
- The homeowner must be Canadian and 55 years or older
- The homeowner must reside in the home and the residency must be at least 6 months per year
- At the time the reverse mortgage starts the equity cannot be exceeding than 55%
If the title of the property is registered to more than one person, you must be registered as joint tenants, not just as tenants in common. The difference between these two types of shared ownership is what would happen to the property when one of the owners passes on. If the property is joint tenants, the interest of a deceased owner automatically gets transferred to the remaining surviving owner. If it is tenant in common the deceased tenant’s property interest belongs to his or her estate.
Although you do not need to have an income to qualify for the borrowed amount as there are no payments required, you will have to stay up to date on paying the property taxes, fire insurance and condo fees (if applicable). The income you have coming in will have to be enough to adequately cover those associated fees.
How much can be borrowed?
There are factors that contribute to the total value. First, your age is a determining factor for this mortgage product. Essentially, the older you are the more you will qualify to borrow. The second factor is in direct relation to the details of your property. For instance, a detached home will qualify to borrow a higher amount than say a condo or townhome. The final factor to consider in this is the maximum amount that can be accessed through a CHIP Reverse Mortgage. The maximum amount is set at 55%. So, if your property is worth $1,000,000 and you are looking to qualify for the maximum amount, that would give you a mortgage of $550,000. If accessing 55% Loan to Value is not high enough there are private lending options that will consider increasing the Loan to Value up to 65%.
One final note is to consider the costs associated with a CHIP Reverse Mortgage. Yes, there are no required payments due while you are living in your home. However, you should expect the following costs to be associated with this product:
- An appraisal of your property will be required.
- There are legal costs associated which could be added to the mortgage and thus does not have to be an out of pocket expense.
- Independent legal advice is required with all CHIP Reverse Mortgages application which will be deducted from the mortgage proceed and does not have to be an out of pocket expense
- Mortgages penalties could be incurred if you break the term of the mortgage –
- 5% of the balance in the first year
- 4% of the balance in the second year
- 3% of the balance in the third year
- 3 months’ penalty in the 4th year
- No Penalty in the year of death regardless of the year
- If during the term you sell and move into a nursing home the penalty is reduced by 50%.
How is your loan repaid?
Your CHIP Mortgage remains for as long as you live in your home. When you decide to move or sell, the proceeds of the home sale repay your loan. The equity left over after repayment of the CHIP Mortgage is yours.
A CHIP Reverse Mortgage can be used as a retirement planning tool which can be a great asset to someone who was frugal in their mortgage paying years and have built up enough equity to supplement their retirement income. In a time where banks are cutting back on lending to pensioners this could be a great alternative.
If you are interested or want to learn more, contact a Sunlite Mortgage Broker today at www.sunlitemortgage.com or 1.877.385.6267 for more details.