What is a Reverse Mortgage?

What is a Reverse Mortgage?

A Reverse Mortgage is a type of interest accruing mortgage that is typically provided to seniors.  The major provider of Reverse Mortgages in Ontario today is the Canadian Home Income Plan (CHIP).  This organization provides homeowners who are 55 years of age or older up to 50% of the property value in a lump sum of cash, less any current debt secured by the property.

reverse mortgageA Reverse Mortgage is a type of interest accruing mortgage that is typically provided to seniors.  The major provider of Reverse Mortgages in Ontario today is the Canadian Home Income Plan (CHIP).  This organization provides homeowners who are 55 years of age or older up to 50% of the property value in a lump sum of cash, less any current debt secured by the property.  This amount accumulates interest until the death of the homeowner (the surviving homeowner, in the case of spouses) or until the property is sold, at which time the mortgage is due and payable.


Mortgage brokering in Ontario is regulated by the Financial Services Commission of Ontario (FSCO) and requires a license.  To obtain a license you must first pass an accredited course.  The Real Estate and Mortgage Institute of Canada Inc. (REMIC) is accredited by FSCO to provide the course.  For more information please visit us at www.remic.ca/getlicensed or call us at 877-447-3642.


A Reverse Mortgage is a type of interest accruing mortgage that is typically provided to seniors.  The major provider of Reverse Mortgages in Ontario today is the Canadian Home Income Plan (CHIP).  This organization provides homeowners who are 55 years of age or older up to 50% of the property value in a lump sum of cash, less any current debt secured by the property.  This amount accumulates interest until the death of the homeowner (the surviving homeowner, in the case of spouses) or until the property is sold, at which time the mortgage is due and payable.

According to CHIP, this tax free type of mortgage is suitable for seniors looking to enhance their lifestyle, renovate their home or pay off their debts without having to use their savings.  As of November, 2013, the current rate for a CHIP reverse mortgage ranges from 3.99 to 5.79%.

At one point, Reverse Mortgages were referred to as RAMS or Reverse Annuity Mortgages.  These mortgage plans would operate the same as the CHIP Reverse Mortgage but, instead of providing the borrower with a lump sum of cash, the proceeds would be used to purchase an annuity that would pay the borrower a monthly income.  Proceeds from a CHIP Reverse Mortgage can still be used to accomplish this, but the term RAM is now no longer as relevant as it once was.

Benefits

Chas Flow -Similar to the Interest Accruing Mortgage, the Reverse Mortgage has no impact on the borrower’s cash flow. 

Repayment – Since the Reverse Mortgage is not due (under the CHIP) program, until death of the remaining homeowner or sale of the property, the borrower never has to repay the debt in his or her lifetime. 

Risks

Reduced Equity – This mortgage may reduce in part or in whole the amount of equity remaining to be passed into the estate.  In addition, the potential of reduced equity may be an issue if the homeowner decides to sell the property during his or her lifetime.

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