As with any standard mortgage, reverse mortgages have a certain degree of risk associated with them. Your home is, after all, probably the single most valuable asset that you will possess during your lifetime. That being said, there are a couple of risks associated with reverse mortgages that aren’t associated with standard mortgages.
The first potential risk of a reverse mortgage is that it can eat away at the equity that you have in your home. With a reverse mortgage, you make no payments until you and your spouse no longer have an interest in the property. From the time you take out your reverse mortgage loan to the time that you pay off the mortgage, the interest on the money you have borrowed is capitalized, meaning it is added to the total mortgage amount. That means that the loan amount can continue growing. Now, Horizon Equity and the Canadian Home Income Plan (CHIP) are aware of the possibility of this, so CHIP has taken a measure to ensure that your loan amount never exceeds the value of your home.
Upon repayment, even if the loan amount accumulated does surpass the value of your home, CHIP guarantees that you will not have to pay that excess – so you’ll never have negative equity through CHIP’s program.
The second risk of a reverse mortgage is the fees associated with obtaining the mortgage loan. In some cases, mortgage lenders charge exorbitant fees and interest rates in exchange for providing you with the mortgage. However, with Horizon Equity, our services are free even if you choose not to proceed with getting a reverse mortgage after meeting with us. Through the CHIP program, the only fees you will need to pay upon set up are: an appraisal fee ($175 to $400); independent legal advice ($300 to $600); and legal, closing and administrative costs amounting to $2,495 (this includes title search, title insurance, and registration). Any subsequent advances of equity through CHIP incur a $250 fee per advance.
Overall, the risks associated with the CHIP reverse mortgage aren’t any more severe than any other standard mortgage. With Horizon Equity and CHIP, you can rest assured that you won’t be stuck with negative home equity or with ridiculous lender and administration fees.