A CHIP reverse mortgage offered by HomeEquity Bank can provide Canadian homeowners aged 55 and over with greater financial flexibility and peace of mind in retirement.
This 2024 review will examine key features of the CHIP reverse mortgage, interest rates and costs, eligibility requirements, pros and cons to weigh, alternatives to consider, and advice for determining if it’s the right option.
HomeEquity Bank and CHIP Reverse Mortgage
CHIP reverse mortgage is a product of HomeEquity Bank, one of only two federally regulated banks in Canada that provides reverse mortgages.
HomeEquity Bank was founded in 1986 under the name Canadian Home Income Plan Corporation. It was the first company dedicated specifically to offering reverse mortgages in Canada. The CHIP reverse mortgage gets its name from the original product called the Canadian Home Income Plan.
Over the past 35+ years, HomeEquity Bank has helped thousands of Canadian seniors access home equity through CHIP-branded reverse mortgage products. The CHIP reverse mortgage makes up most of HomeEquity’s lending activity and is its most popular product, with almost 85% of the Canadian reverse mortgage market.
What are the Key Features of CHIP Reverse Mortgages?
The CHIP reverse mortgage offers 7 key features and benefits that make it an attractive option for some retirees:
- Access up to 55% of your home’s value tax-free
Depending on your age, location, and type of home, you may qualify to access up to 55% of your home’s appraised value without paying any income tax on the amount received. These funds are essentially borrowed against your home equity.
- No monthly mortgage payments are required
This is a critical advantage for most seniors. You do not need to budget for mortgage payments every month, providing greater financial flexibility.
- Remain the owner and live in your home
With a CHIP reverse mortgage, you retain ownership of your house and can continue living in it under the terms of the loan agreement.
- Owe no more than home value
Interest compounds on the reverse mortgage loan balance over time, but HomeEquity Bank guarantees the amount owed will not exceed your home’s fair market value when the loan is to be repaid.
- Not affect OAS, GIS or CPP benefits
The funds you receive from a CHIP reverse mortgage are not considered taxable income, so they will not impact your eligibility for OAS, GIS, or CPP payments.
- Flexible lump sum or regular payments
Depending on the type of CHIP reverse mortgage selected, you can receive funds as a single lump sum, scheduled advances, unscheduled payments as needed, or any combination. This flexibility allows the loan to suit your needs.
- Available across Canada except Yukon, NWT, and Nunavut
The CHIP reverse mortgage can be utilized in any Canadian province, providing national coverage with some territorial exclusions. Rural properties are accepted, but maximum lending limits may be lower than in urban areas.
Are you Qualified for a CHIP Reverse Mortgage?
Generally, to qualify for a CHIP reverse mortgage, you must meet the following eligibility criteria:
- Minimum age of 55 – All borrowers named on the home title must be at least 55.
- Canadian citizenship – You must be a citizen or permanent resident of Canada.
- Primary residence – Your home must be your primary place of residence for at least 6 months per year. Secondary homes or rental properties do not qualify.
- Minimum home value of $250,000 – The property must have a minimum appraised value of $250,000. It can be higher based on your chosen CHIP reverse mortgage products.
- Located in an eligible province – Reverse mortgages cannot be placed on properties in Yukon, Nunavut or Northwest Territories.
- Good standing on title – There can be no arrears in municipal tax payments, outstanding legal judgments, or issues that would result in a forced sale.
- Adequate home insurance – Appropriate property insurance must be maintained for the duration of the reverse mortgage.
- Pass initial financial assessment – You must also pass HomeEquity Bank’s evaluation of your ability to meet the loan obligations.
In addition, if an existing mortgage or other encumbrance is on the property’s title, it must be discharged before closing the reverse mortgage.
Spouses or common-law partners must also meet eligibility criteria, even if they are not listed as owners on the home’s title. Any new spouses or partners after the mortgage is originated may necessitate changes to the loan agreement.
What are CHIP Reverse Mortgage Options?
HomeEquity Bank provides four main types of CHIP reverse mortgage products designed to suit different financial situations. These products provide retirees with accessible home equity to improve their retirement finances and lifestyles.
CHIP Reverse Mortgage
The CHIP Reverse Mortgage is HomeEquity Bank’s original and most popular product. It allows homeowners to access up to 55% of their home’s value in a tax-free lump sum payment or line of credit.
With this option, you can receive the funds in a single initial advance, scheduled payments, unscheduled payments as required, or any combination. It provides maximum flexibility to suit your financial needs. The available loan amount will depend on your age, type of home, location and the prevailing interest rates.
How to qualify?
- A Canadian homeowner
- Both you and your spouse must be 55+
- Have a home worth at least $250,000 that is your primary residence
CHIP Max
CHIP Max is a reverse mortgage product explicitly designed for younger borrowers aged 55-64. It provides access to more of your home equity, up to 60% of your property’s value, compared to the 55% maximum with a standard CHIP Reverse Mortgage.
Like the original CHIP product, you can receive the funds in a lump sum, scheduled payments, line of credit, or combination. CHIP Max appeals to younger retirees with higher cash needs early in retirement but less time to accumulate additional equity.
How to qualify?
- Canadian homeowners in select locations
- Both you and your spouse must be 55+
- The home must be your primary residence
- Have a primary residence worth at least $300,000
Priority access is given to existing HomeEquity Bank clients. All other standard eligibility criteria apply.
CHIP Open
CHIP Open is a short-term reverse mortgage option with flexible repayment privileges. Homeowners can access a portion of their equity in a lump sum payment and repay the full balance owing at any time without incurring any prepayment penalties.
This product works well as temporary bridge financing to tap home equity for a short-term need or until other funds become available. The lack of prepayment penalties provides peace of mind.
How to qualify?
- Canadian homeowners
- Both you and your spouse must be 55+
- Have a primary residence worth at least $300,000
Income Advantage
For retirees requiring regular income to replace mortgage payments or supplement pension income, the CHIP Income Advantage reverse mortgage provides scheduled monthly advances. This lets borrowers access their housing equity on an ongoing basis.
The minimum advance amounts are $1,000 monthly or $3,000 quarterly. The funds are deposited directly to your bank account for retirement income assistance. Like other CHIP products, you only have to make payments and interest accrues once the home is sold or vacated.
How to qualify?
- A Canadian homeowner
- Both you and your spouse must be 55+
- Have a home worth at least $250,000 that is your primary residence
Choosing between 4 CHIP Reverse Mortgage Products
The standard CHIP Reverse Mortgage is the most popular product. It allows borrowers to receive funds as a lump sum payment or line of credit.
Income Advantage is suitable for those wanting small regular advances to supplement retirement income sources or pay bills.
CHIP Open serves as a short-term financing option with flexible repayment.
CHIP Max aims to allow younger borrowers to access more equity than a standard CHIP Reverse Mortgage’s 55% maximum loan-to-value ratio.
Consulting a mortgage broker can help you determine the best product to meet your specific needs and make the best decision.
What are CHIP Reverse Mortgage Rates and Costs?
As with any loan product, a CHIP reverse mortgage has interest fees. Understanding these costs is essential when evaluating whether a reverse mortgage makes sense in your financial situation.
CHIP Reverse Mortgage Rates
The interest rate on a CHIP reverse mortgage will be set based on market conditions when the loan originated. Still, it can be fixed or variable rate, depending on the selected product and term. Here are the current CHIP reverse mortgage rates as of August 2024.
CHIP Reverse Mortgage Rates
| Term | Interest Rate | Annual Percentage Rate (APR) |
|---|---|---|
| 1 Year Fixed | 8.19% | 8.87% |
| 3 Years Fixed | 7.29% | 7.81% |
| 5 Years Fixed | 6.69% | 6.99% |
| 5 Year Variable | 9.36% | 9.75% |
CHIP Max Rates
| Term | Interest Rate | APR |
|---|---|---|
| 1 Year Fixed | 9.59% | 9.99% |
| 3 Years Fixed | 8.79% | 9.16% |
| 5 Years Fixed | 8.29% | 8.64% |
| 5 Year Variable | 10.61% | 11.06% |
CHIP Open Rates
| Term | Interest Rate | APR |
|---|---|---|
| 3 Year Variable | 11.2% | 11.78% |
Income Advantage Rates
| Term | Interest Rate | APR |
|---|---|---|
| 1 Year Fixed | 8.19% | 9.42% |
| 3 Years Fixed | 7.29% | 9.08% |
| 5 Years Fixed | 6.69% | 8.82% |
| 5 Year Variable | 9.36% | 9.72% |
While certainly higher than traditional mortgage rates, the CHIP reverse mortgage rates reflect the flexibility of not requiring monthly repayments. Special discounted rates may also be available when applying through an accredited mortgage broker.
Fees and Closing Costs
In addition to interest charges, here are some of the common fees and costs associated with obtaining a CHIP reverse mortgage:
- Set-up fee – This one-time fee ranges from $1,795 to $2,995, depending on the product selected. It can be financed into the mortgage.
- Independent legal advice – Borrowers must receive third-party legal counsel to ensure they understand the loan terms. Fees typically range from $500 to $1,000.
- Appraisal fee – An appraisal is required to determine the property’s fair market value. Fees typically range from $300 to $600.
- Insurance premiums – Property insurance must be maintained, and the borrower must pay premiums.
- Closing costs – Typical real estate closing costs apply, including legal fees and title searches.
- Prepayment penalties – Discussed more in the following section. Various prepayment penalties may apply if the loan is repaid early.
Ensure you understand all applicable costs when applying for a CHIP reverse mortgage. An accredited mortgage broker can explain all fees and provide a detailed cost estimate.
Prepayment Penalties
CHIP reverse mortgages allow prepayment of up to 10% of the outstanding loan balance each year without penalty. However, payoffs exceeding this amount may incur prepayment charges:
| Prepayment Timing | Penalty |
|---|---|
| Year 1 | 5% of principal + interest owed |
| Year 2 | 5% of principal + interest owed |
| Year 3 | 5% of principal + interest owed |
| Year 4 | 4% of principal + interest owed |
| Year 5 | 3% of principal + interest owed |
| After Year 5 | None of the conditions were met |
Some key points regarding CHIP reverse mortgage prepayment penalties:
- Penalties are calculated from the initial date of loan set-up, not individual term renewal dates
- No penalty if prepaid after 5 years and 30 days from the most recent interest reset date
- The penalty is waived entirely upon the death of the last surviving borrower
- 50% penalty reduction if the borrower moves to a long-term care facility
An experienced broker can advise you on structuring your CHIP reverse mortgage to minimize prepayment penalties. You also want to avoid needing to break your mortgage early if possible.
What are the Pros and Cons of CHIP Reverse Mortgages?
While reverse mortgages like the CHIP provide seniors with increased financial flexibility, they are complex products. You want to evaluate the pros and cons carefully:
Pros
- Immediate access to tax-free cash from your home equity
- No required monthly mortgage payments
- Ability to stay in your home for life
- Initiating the spouse’s age does not limit loan terms
- Payment flexibility with a lump sum or advances
- Unused LOC funds continue to be accessible
- Interest accrues, but the home value is the maximum payout
- Typically, no credit checks or income verification
- Fast application process with a direct lender
- No prepayment penalties after five years if conditions are met
Cons
- Higher interest rates than traditional mortgages
- Upfront fees and closing costs
- Interest compounding reduces estate value
- Prepayment penalties if repaid earlier than 5 years
- Inheritance amount for heirs will be reduced
- Home maintenance remains the responsibility of the borrower
- Potential difficulty obtaining additional financing in future
- Maximum payout only at current appraised value, not future appreciation
- Limited ability to customize terms; cannot port to a new property
A reverse mortgage offers several advantages, requiring no monthly payments and providing ready access to large lump sums. However, the costs can accumulate significantly over time from compound interest, so evaluating other options for generating funds is wise.
How to Apply for a CHIP Reverse Mortgage?
To apply for a CHIP reverse mortgage, follow these 10 key steps:
- Get an initial quote – Use HomeEquity Bank’s online calculator or call to receive an estimate of potential lending limits and loan amounts.
- Consult your family – Discuss openly with family members who may be impacted by using your home equity.
- Speak with a specialized broker – Mortgage brokers can provide advice specific to your situation and may get you better rate discounts.
- Start the application – Start the application process through HomeEquity Bank via telephone. An account manager will be assigned.
- Submit required documents – Be prepared to provide identification, tax returns, mortgage statements, property tax details and proof of insurance.
- Valuation completed – HomeEquity Bank will arrange for an appraiser to visit and evaluate your home. You pay the appraisal fee.
- Initial approval – Based on the appraisal and your application details, initial approval may be granted in principle.
- Obtain independent legal advice – This is mandatory to ensure you understand the loan terms and implications.
- Final loan approval – The final loan agreement can be approved and disbursed after the legal counsel reviews it.
- Satisfaction – You obtain tax-free funds from your housing equity to enhance your retirement income flexibility.
The entire application process typically takes 4-8 weeks. An accredited broker can assist with the coordination for a smooth process. When applying, ask about any current promotions, discounts, or incentives from HomeEquity Bank.
Explore our review of other Canada’s top reverse mortgage lenders:
Final Recommendations to Get Your Best Reverse Mortgage
A CHIP reverse mortgage can be a viable option for retirees looking to comfortably supplement their retirement income and age in place. However, weigh your decision carefully and consider these 8 recommendations:
- Understand the costs – Reverse mortgages have higher rates and fees than traditional mortgages, so factor long-term costs. Don’t use for short-term needs.
- Consult family first – Discuss implications with heirs and family impacted. A reverse mortgage will reduce their inheritance value.
- Compare the options – Contrast rates and features to alternatives like refinancing or traditional home equity borrowing methods.
- Maximize value – Take out the least amount needed and pay interest monthly to reduce costs. Leave a buffer for home value appreciation.
- Get a terms sheet – Have a broker or adviser provide a detailed terms sheet to understand all costs, risks and obligations.
- Think long-term – Ensure you have the financial capacity to keep paying all home-related costs like insurance and taxes.
- Maintain good credit – Missed payments on utilities, taxes, insurance, etc. can trigger loan default and early repayment.
- Use a broker – Accredited brokers can provide tailored advice and access discounts that are unavailable when applying directly.
While not suitable for everyone, a CHIP reverse mortgage can provide retired Canadian homeowners with added flexibility, peace of mind, and funds to enjoy their mortgage-free retirement while still staying in their homes.
If you are considering a reverse mortgage or accessing your home equity, contact a specialized mortgage broker at Best Mortgage Online. They will happily review your situation, see if you qualify, answer any questions, and provide recommendations tailored to your needs. Unlock your home equity to improve your retirement today!
FAQs
How does a CHIP reverse mortgage work in Canada?
A CHIP reverse mortgage allows Canadians 55+ to access home equity without monthly payments. You receive funds while keeping ownership. The loan is repaid when you sell the home or move out.
What are the benefits of a CHIP reverse mortgage?
Benefits include tax-free cash, no required mortgage payments, the ability to stay in your home, and funds that don't affect government benefits.
Who qualifies for a CHIP reverse mortgage in Canada?
To qualify, you must be a Canadian homeowner and have a primary residence worth $250K or more. All homeowners on the title must be 55 or older.
What are the interest rates for CHIP reverse mortgages?
Interest rates are higher than traditional mortgages but lower than other private financing options. Current fixed and variable rates range from 6.69% to 11.2%.
How long does it take to get a CHIP reverse mortgage in Canada?
The full application process typically takes 4-8 weeks. It starts with an initial consultation, followed by application, valuation, approval, and legal advice.
What are the costs and fees for a CHIP reverse mortgage?
Costs include a $1,795+ setup fee, appraisal and legal fees, closing costs, insurance premiums and interest. Prepayment penalties may also apply.
Can a CHIP reverse mortgage be used for a second home?
No, a CHIP reverse mortgage can only be placed on your primary residence that you live in for at least 6 months per year. Secondary homes need to be more qualified.
Is a CHIP reverse mortgage safe for homeowners?
Yes, CHIP reverse mortgages are generally safe thanks to consumer protections and regulations. Risks relate mainly to accumulated interest, which reduces equity over time.
How does a CHIP reverse mortgage affect government benefits?
Funds from a CHIP reverse mortgage do not count as taxable income, so they have no impact on your eligibility for OAS, GIS or CPP payments.
How does a CHIP reverse mortgage affect inheritance?
A CHIP reverse mortgage will leave less inheritance value for heirs since it uses your home's equity. Discuss implications with the family before deciding.
Can you get a CHIP reverse mortgage for a mobile home?
No, CHIP reverse mortgages are only available for traditional homes, townhomes and some condo units. Mobile homes on leased land do not qualify.
What happens when the last borrower dies with a CHIP reverse mortgage?
When the last borrower passes away, the heirs can repay the loan, keep the home, or sell the property to settle the mortgage balance.