Reverse Mortgages have had their share of misconceptions. In fact, we are often approached with false assumptions and unfounded facts about the product that steer the public to think of the product in a negative light. This article will cover one of the most common myths and the real facts behind this myth that has long been misinterpreted.
Myth: One of most common misconceptions that we hear time and time again is that you will lose ownership of your home to us.
Fact: This statement is false. HomEquity Bank, the provider of the CHIP Reverse Mortgage has taken several measures that ensure the protection of your equity.
1) Retain ownership of your home: Just like with any other mortgage, your home is used to secure the loan, which means that HomEquity Bank is registered as a standard charge on title. You, as a customer DO NOT transfer ownership of your home to us. In fact, once it’s time to pay back the mortgage you or your heirs have the choice to settle the loan however you or they want. Selling the home is the most common option, but it is not mandatory.
2) Our conservative lending practices: In our ads and on our website, we remind the customers that they can get up to 55% of the value of their home in a reverse mortgage loan. Of course, this amount does depend on the borrower(s) age, their property type as well as the location of their home. But as a rule of thumb, the younger the borrower is, the less they will qualify for and the older the borrower is, the more they will qualify for. This is because we want to make sure that the borrowers reverse mortgage loan doesn’t exceed the value of their home.
3) The potential value appreciation of your home: Many people don’t realize that their home may appreciate in value, however the interest that accrues only accumulates on the small borrowed amount of the home. That is why we say in our marketing pieces that “99% of homeowners have money left over” when their loan is settled.
This graph illustrates how the interest is affected when a home appreciates in value. For illustration purposes, we have used 3%, a modest level of home appreciation, which allows for equity preservation after a borrower takes out a CHIP Reverse Mortgage for 15 years. This example illustrates the following:
Home appraised at $500,000.
Homeowner(s) qualify for $200,000 (40%) of the value of their home in a CHIP Reverse Mortgage.
The homeowner(s) take the CHIP loan for 15 years before they move, sell or pass away.
The home appreciates at 3% and the new home value after 15 years is $778,984.
The principal plus interest total $457,288 and the estate still has $321,696 in equity (41% of the home value at time of sale).
Home Equity Preservation Graph – CHIP Reverse Mortgage The following graph is for Illustration purposes only *
4) Negative equity guarantee – Many people ask, “what happens if the house doesn’t appreciate in value, and in fact depreciates?” Our negative equity guarantee ensures that if your home depreciates in value at the time the home is being sold, and the loan amount due is more than the sale amount of the property, the homeowner or the heirs will not be financially penalized for being on title of the home. In fact, HomEquity Bank, will pay the difference between the sale amount and the loan amount when the loan amount due is more than the sale amount of the property. However, just like all other home equity loans, the homeowner(s) must keep their property taxes up to date, and maintain the condition of their home. If these conditions are met, the borrowers will never owe more than the fair market value of their home, when the home is sold.
The above measures are all the reasons why a CHIP Reverse Mortgage customer will not lose their home to the lender. A CHIP Reverse Mortgage provides a great solution for a growing number of Canadian retirees. For more information on this solution for homeowners 55+, contact your local Dominion Lending Centres mortgage professional.
* The illustration uses conservative values:
Example based on the national price of Canadian homes of $500,000 (Average home price in Canada is $519,521 according to the CREA, February 2017)
Example based on CHIP Reverse Mortgage advance of 40%
Home appreciation of 3.00%. Average home appreciation is 7.16% annually. (Source: CREA, Canadian Real Estate Association 15-year national house appreciation average, February 2017). HomEquity Bank makes no representations on future housing market performance.
CHIP interest rate of 5.59%. The Annual Percentage Rate (APR) is 5.79%, which is the estimated cost of borrowing for 5 years expressed as an annual percentage. The APR includes interest and closing costs.