The Canadian Home Income Plan (CHIP) is commonly called a reverse mortgage. This is an opportunity for homeowners over the age of 55 to increase their cash flow but still live in their current house. It allows you to receive up to 55% of the value of your home and you have the option to receive that money in a single, lump sum or in monthly installments, or both. The best part is that it is tax free.
While it sounds good that we are able to enjoy an extended life span, well into our 90s, and are healthy enough to take advantage of an active lifestyle. The downside is that pensions may not have anticipated this longevity, and many are being phased out. With economic strains, many older adults are finding it necessary to withdraw investments sooner than anticipated, borrowing through a line of credit based on home equity, or running up high credit card charges.
That’s why a CHIP is a good idea for those individuals or couples who have accumulated a nice home equity and would like to have some extra money for expenses or to consolidate other, high-interest debt. It can also be a powerful tool in an overall financial strategy. Surveys show that 93% of Canadians would like to continue living in their home and maintaining independence for as long as possible, and a reverse mortgage might be a way to accomplish this goal.
Utilize One of Your Most Valuable Assets
With a reverse mortgage, you can utilize one of your most valuable assets, your house. Through it, you will have available the equivalent in cash of 55% of the current equity in your home. As mentioned, it is tax-free. You will have no mortgage payments on this money, and you can spend it any way you want. In fact, as your home continues to increase in value, you can access that as well. It may be a better choice than downsizing, depending on your circumstances.
This gives you the opportunity to continue to live in your home with the extra cash without digging into your registered savings account or investments. Since you can use the cash any way you like, many people use it to cover high-interest debt and still have CHIP money left over. You may also choose to invest the cash to increase your monthly income.
As you do your research, you will find that securing a reverse mortgage is very much like a conventional mortgage. You can expect about the same charges in appraisal, legal and administrative fees. The interest rates will be somewhat higher than a conventional mortgage, but still lower than those on an unsecured line of credit, second mortgage, or credit card.
While you won’t be required to make regular mortgage payments, interest will accumulate and you will need to pay back the amount of funds you received plus the accrued interest when you finally sell your home.
This is a good option for many people, but we suggest you discuss the details with your family and Mortgage Broker in Etobicoke to make the best decision.
At Easy House Loan we love to help and educate our value clients located in Etobicoke, Mississauga, Oakville and all around the GTA. We have the right mortgage solutions for you and your family.