Tapping into Home Equity: Why Choose a Reverse Mortgage Over a HELOC?

As the cost of living has increased, it may be challenging to meet your retirement income needs and access the cashflow you need to live a desired lifestyle. One advantage that many retired Canadians possess is home ownership. Tapping into some of the equity you have built in your home can help you obtain the additional funds you require.

Tap into your home equity 

If you wish to stay in your current home, there are two popular methods to tap into your home equity: a Home Equity Line of Credit (HELOC) and a reverse mortgage.

HELOC lenders typically allow homeowners to access up to 65% of their home’s value. With a HELOC, you can borrow money as needed, based on an agreed-upon amount, and you’ll be required to make minimum monthly interest payments. Unlike a conventional mortgage, there are no fixed scheduled payments towards the loan’s principal, offering you the flexibility to repay the loan at your convenience.

A reverse mortgage is another common way homeowners tap into their home equity. Specifically, the CHIP Reverse Mortgage by HomeEquity Bank is designed for Canadian homeowners aged 55 and above. It allows you to access up to 55% of your home’s value and receive the funds as tax-free cash, all without the need to move or sell your property. While you continue to live in your home, there are no required monthly mortgage payments to worry about. The full loan amount only becomes due when you decide to move, sell the house, or through the estate after the homeowner’s passing.

Advantages of the CHIP Reverse Mortgage 

The CHIP Reverse Mortgage offers several benefits, one of the most notable being the absence of monthly mortgage payments. This feature is particularly valuable to Canadians 55+ when cashflow can be a concern. Here are some of the other benefits of the CHIP Reverse Mortgage:

• Simplified underwriting. The CHIP Reverse Mortgage caters to Canadians aged 55+ who rely on a fixed income and might face challenges qualifying for a HELOC.

• No need to requalify: Unlike a HELOC that requires continuous credit score checks, the CHIP Reverse Mortgage eliminates the need for requalification, ensuring access to funds without credit score barriers.

• Death of a spouse does not impact a reverse mortgage. With a HELOC, the passing of a spouse may prompt the bank to conduct a credit score review of the surviving spouse. With the CHIP Reverse Mortgage, the loan doesn’t become due until after both homeowners no longer live in the home.

• Fixed-term rate options:  The CHIP Reverse Mortgage provides fixed rate choices, allowing borrowers to lock in rates for up to five years. On the contrary, a HELOC’s interest rate floats and fluctuates with the Bank of Canada’s prime rate, leading to increased borrowing costs in times of rising interest rates.

Contact me to learn more about how you can use the CHIP Reverse Mortgage to tap into your home equity.

No Negative Equity Guarantee

You may consider a reverse mortgage to turn your home equity into tax-free cash as part of your retirement solution. But, you might question, “With a reverse mortgage will I owe more than my home is worth?”

The answer to this is NO.

The CHIP Reverse Mortgage has safeguards built into products to ensure you are not at risk of losing your home or equity.

What is the No Negative Equity Guarantee? 

The No Negative Equity Guarantee* ensures that if you meet your property taxes and mortgage obligations, HomeEquity Bank guarantees that the amount owed on the due date will not exceed the fair market value of your home. If the house depreciates and the mortgage amount due is more than the gross proceeds from the sale of the property, HomeEquity Bank covers the difference between the sale price and the loan amount.

Ultimately, the No Negative Equity Guarantee keeps you and your equity secure in your home. The peace of mind you get from leveraging a reverse mortgage is protected no matter the economic backdrop.

Does a home ever sell for less than the mortgage balance?

This is extremely rare. HomeEquity Bank never lends more than 55% of the home’s value for this reason. Over the past 30+ years, 99% of Reverse Mortgage holders have had equity left in their home; on average, this equity amounts to 60%. Escalating real estate value boosts the equity in the house, reducing the impact of interest charged to the mortgage principal. The homeowner keeps all the equity remaining in the home. That equity depends on the amount borrowed, the value of the house, and the time that has passed since the reverse mortgage was taken out.

Contact me if you have any questions about The CHIP Reverse Mortgage!

*As long as you keep your property in good maintenance, pay your property taxes and property insurance and your property is not in default. The guarantee excludes administrative expenses and interest that has accumulated after the due date.

Is the CHIP Reverse Mortgage right for you?

As a Canadian 55+, there are a variety of financial options available for you in retirement. However, this does not mean that every financial option is right for you, so it’s essential that you reflect on your retirement needs and choose a financial solution that best meets those needs. For example, the CHIP Reverse Mortgage by HomeEquity Bank is a versatile financial option that can help solve several financial challenges faced by Canadians 55+.

If you are retiring with debt and want to consolidate and avoid payments, if your investment portfolio has not performed as well as you had planned, or if you require additional cash flow to deal with rising expenses because of inflation, then the CHIP Reverse Mortgage may be the right financial solution for you. From helping you pay bills and cover unplanned expenses to having the freedom to travel more or purchase a second home or vacation property, the CHIP Reverse Mortgage is a versatile and flexible financial solution for retired Canadians at least 55 years old.

We have found that Individuals who use the CHIP Reverse Mortgage usually fall within four groups based on their financial needs:

1. Alleviate the stress of debt.

You fall within this group if you need help making mortgage payments and paying your credit card bill. If you prefer not to use your savings or investment portfolio for cash and are incurring more and more debt over time due to unavoidable expenses, then you likely require a solution to ease your financial stress.

2. Pay for unplanned expenses.

If you are facing unexpected expenses, such as fixing a broken window, retrofitting your home for mobility reasons, or even incurring costs associated with in-home care, you fall into this group. Essentially, you are facing a short-term financial strain and need quick cash to take care of the costs.

3. Want to live life to the fullest.

You fall into this group if you want to take advantage of your free time now that you have retired but need more funds. It would help if you had increased cash flow to live out the retirement you have always dreamed of.

4. Maintain a standard of living.

Many individuals may be forced to adjust their lifestyle once they retire to accommodate a lack of income. If you want to maintain your preretirement lifestyle but require extra funds, you fall into this group.

If you belong to any of these groups, it may be time to consider the CHIP Reverse Mortgage as your financial solution. The CHIP Reverse Mortgage allows Canadian homeowners 55+, such as yourself, to access up to 55% of their home’s value in tax-free cash. It offers flexible withdrawal options, including a lump sum, in stages, at regular intervals over a set period, or a combination. Furthermore, you are not required to make monthly mortgage payments and continue owning your home. You are only required to repay the loan when you decide to move out, sell, or no longer reside in your home. HomeEquity Bank also offers a No Negative Equity Guarantee[1], which means you will never owe more than the value of your home as long as you keep the property in good maintenance, pay property taxes and insurance, and the property is not in default.

Contact me to see if the CHIP Reverse Mortgage is a fit for you and how to use it to help you in retirement.

[1]The guarantee excludes administrative expenses and interest that has accumulated after the due date.