What is CHIP? What are Reverse Mortgages?
CHIP is a reverse mortgage, a loan secured against the value of your home. It lets you release the capital in your home without having to sell or move. The money you receive is tax-free and yours to use as you wish. You can arrange a CHIP mortgage for purchase or refinance. Reverse Mortgages are provided by HomeEquity Bank.
Here is an overview on Reverse Mortgages provided by the Government of Canada, Financial Consumer Agency.
The Benefits of CHIP
- Keep your home. Maintain complete ownership and control of your home for as long as you choose to stay.
- No payments. With CHIP, you never have to make regular payments until you no longer live in the home. You do however, have to pay your property taxes, have valid & adequate fire insurance, and maintain your property.
- Relieve financial stress. Use up to 55% of the equity in your home to pay off debts or handle unforeseen expenses.
- Enjoy retirement. The money you access through CHIP is tax-free.
- Income Advantage or Lump-sum single advance. You can take the funds as a lump-sum or pay yourself a monthly amount.
- If your preference is Income Advantage, you are required to take a minimum $20,000 lump sum, and the minimum amount you can take is $1,000 per month for a maximum of 15 years.
Who Can Qualify?
- Canadian homeowner.
- Age 55 or older.
- Own your own home.
- It’s your primary residence.
Other Interesting Facts
- If there are 2 spouses on title, both have to be at least 55.
- The reverse mortgage is ongoing even if one spouse passes away.
- Can be registered interalia up to 3 properties as long as one of them is your primary residence.
- Bed & Breakfast properties are considered on an exception if owner occupied.
- Prepayments available up to 10% of the outstanding principal and interest within 30 days of each anniversary date without penalty.
- You can choose to pay the interest only each month, or no payments at all.
- After 5 years, there is no prepayment charge if payment is made within 30 days of the reset date.
What Can I Expect for Costs & Rates?
- Please note that the information below regarding interest rates and prepayment charges is reflective for what is available today, and is subject to change.
- There are some initial set up costs that include: appraisal, administration, and legal fees. In total, these are approximately $3,000.00.
- Independent Legal Advice is required.
- Interest rate pricing is subject to change; as of October 12th, 2022, the available rates are: 6 month at 7.34%, 1 year at 7.49%, 3 year at 8.14%, and 5 year at 8.34%. Variable is at 8.40% (prime + 2.95). The available rate will depend on the location of the property.
Are There Penalties if I Want to Payout My Mortgage?
- Yes. If you payout the mortgage during the first year, the penalty is 5% of the outstanding balance. If you payout during the 2nd year, the penalty is 4% of the outstanding balance. If you payout during the 3rd year, the penalty is 3% of the outstanding balance.
- After the 3rd anniversary, the penalty is 3 months’ interest.
- After the 5th anniversary, the penalty can be waived with 3 months’ notice.
Please note this content is provided for information purposes, and may be subject to change without notice.
Need more information? Here are 3 PDF information sheets that may help answer your questions: CHIP FAQs – June 2021; CHIP Fact Sheet – June 2021; CHIP Income Advantage Fact Sheet – June 2020.