Reverse Mortgage BLOG (Part 3)
If you’ve read parts 1 and 2 of our Reverse Mortgage series, you are hopefully better informed about the myths and misconceptions, advantages and disadvantages of this financial tool. Now let’s take a look at the available products and how one might use them.
You may have seen advertisements for the CHIP reverse mortgage. The CHIP reverse mortgage is the original product – and still the most popular – although it has changed over the years to serve clients better.
CHIP allows you to take an initial lump sum, the minimum being $25,000, regardless of how much has been approved. CHIP can be used for a wide variety of purposes that include:
Paying off the debt that is causing stress and draining cash flow
Renovations that could increase the value of your home
Buying a second home or cottage
There are many other uses, but this gives an idea of how CHIP mortgage proceeds might benefit the homeowner. Keep in mind as well that the money is tax-free.
Next is the Income Advantage Program, which I like to characterize as a tax-free RRIF. This mortgage allows clients to supplement their retirement income.
You are obligated to take a minimum lump sum of $20,000, but an Income Advantage mortgage then provides monthly, quarterly or semi-annual advances of a minimum of $1,000 per draw. Like a credit line, interest accrues only on the outstanding balance, not on the full amount approved.
Clients often use Income Advantage for:
Enhancing their day-to-day lifestyle
Increasing monthly/periodic cash-flow
Protecting their investments
A relatively new product is the CHIPMax mortgage. It is similar to the CHIP mortgage but is available in select locations – usually major urban areas such as the GTA or GVA. If you qualify for CHIPMax, your advisor will be able to outline the available options, comparing both the CHIP and CHIPMax terms and conditions.
Clients might use the CHIPMax mortgage for:
Avoiding high-interest loans or an additional mortgage
Boosting their income
Maintaining (or elevating) their retirement lifestyle
The newest Reverse Mortgage is the CHIP Open. This long-awaited product is a good fit for clients seeking a flexible and potentially short-term financial solution. Closing costs are a little higher than for other reverse mortgages, but the product is completely open and can be paid at any time in its entirety – without penalty.
The CHIP Open can be a considerable advantage, as other reverse mortgages (with certain exceptions) can impose a significant penalty should you decide to pay them off within the first three years.
Some of the potential uses for the CHIP Open mortgage are:
Bridge financing, or as a short-term cash-flow solution
Funds to renovate your home before sale to maximize the return
Helping a family member with emergency expenses
As you can see, the solutions and opportunities are many and require some research. There are multiple providers for reverse mortgages in Canada. Not all products are offered or provided by Reverse Mortgage Companies.
Meeting with your reverse mortgage broker is an excellent first step.
Our next blog will outline some case studies that demonstrate how reverse mortgages have helped in real-life situations.
This post is intended for information purposes only. Each circumstance is different, and if you are interested in specific details for your situation, please contact your Mortgage Specialist or contact Steven B. Cheung who can direct you to a Reverse Mortgage Specialist.