How Does a Reverse Mortgage Work?

Great Question!

A Reverse Mortgage works similar to a typical Canadian mortgage in many ways, however, it also has some key differences. A Canadian Reverse Mortgage is designed specifically to meet the needs of Canadians 60 years of age and older and your unique circumstances.

A Reverse Mortgage is registered on the title of your home, just like a regular mortgage. Some differences include:

• Unlike a typical mortgage, you do not need to make a monthly principal or interest payments on a Reverse Mortgage. This is designed to improve cash-flow for Canadian Seniors with limited, fixed incomes.
• Unlike a regular mortgage, the interest accumulates monthly and is added to the loan amount, which makes it more affordable and improves your quality of life.
• Unlike a typical mortgage, you do not need to qualify for a Reverse Mortgage based on your income or credit. You are eligible for a Reverse Mortgage in Canada if you are 60 years of age or older and own a home in the CHIP lending area. This makes qualifying easy and hassle free, even if you have retired and are living on a limited retirement income.
• A CHIP Reverse Mortgage from Horizon Equity guarantees that you will never owe more than the value of your home, and you never have to make a payment until you decide to move or sell. A regular mortgage can’t guarantee that!

One of the concerns that people sometimes have about Reverse Mortgages is whether or not the interest owing will eventually overcome the equity established in the home. There are two major reasons why that scenario is unlikely:

1. CHIP guarantees that you will never have to pay more than the home is worth at the time of sale.
2. The table below shows that, based on average home value appreciation in Canada, your equity is actually more likely to increase over time, rather than decrease. CHIP only lends a conservative amount – up to 40% of the value of your home, and no more – which decreases the likelihood of “equity absorption”.

*Based on average home appreciation of 5% annually and an interest rate of 7% on the Reverse Mortgage Loan Amount, both compounded annually.

If you’re interested in obtaining a Reverse Mortgage, please contact us and we would be happy to assist!