Reverse mortgages are a useful and regulated financial instrument for Canadians who are in retirement or are planning retirement. But a negative stigma has prevented many Canadians from considering them.
This negative stigma is fading fast. Leading financial advice columnists are writing about them as a viable option for Canadian retirees, and financial planners and advisors are recommending them to their clients. In November, HomEquity Bank, which offers the CHIP (Canadian Home Income Plan) reverse mortgage, published a list of “10 Facts That Will Make You Change Your Mind on Reverse Mortgages”. We’ve covered many of them in this blog, including the fact that independent legal advice is required to attain a reverse mortgage and that nothing changes if your spouse dies while you have a reverse mortgage. Here is a breakdown of some of the HomEquity facts about reverse mortgages.
1. Credit rating and income level are not factors in a reverse mortgage
The CHIP home income loan is secured by property equity. As a result, the loan is automatically repaid when the home is sold. The only thing that matters is that you have paid off at least 50% of your mortgage.
2. Funds from a reverse mortgage are tax-free
You do not pay taxes on any funds that come from a reverse mortgage. This can help you in a number of ways, including the fact that government benefits are not affected since these funds are not considered taxable income. You can also deduct CHIP interest charges from investment income from non-registered investments.
3. Canadian reverse mortgages are more tightly regulated than American reverse mortgages
There are very strict rules surrounding Canadian reverse mortgages, precisely to avoid the kinds of scenarios that gave reverse mortgages a bad name in the United States. You can only borrow up to 50% of the value of your home, your reverse mortgage cannot be foreclosed, and you continue to own your home and the terms of the loan do not change if your spouse dies before you do.
4. A reverse mortgage can diversify your retirement portfolio
In order to have a comfortable retirement, it is advisable to have a number of financial instruments in your retirement plan. Adding a reverse mortgage to your retirement income ensures that you aren’t relying too much on one particular method of investment to safeguard your retirement.
5. Reverse mortgages are simple to apply for
Applying for a reverse mortgage is simple. Just call Horizon Equity to talk to one of our CHIP Home Income plan specialists, have your home appraised, and seek independent legal counsel to advise you on the transaction and sign the final papers.
Contact us today if you have any other questions about reverse mortgages, or to apply.