CHIP or Income Advantage: Which Reverse Mortgage Should I Choose?
As a homeowner, you understand what your home is worth. We’re not just talking about actual market value, (although it shouldn’t be discounted, since your home is likely one of your biggest assets) but also the value created by the years of work you’ve put into it, and the memories you’ve made while living there. For most of us, staying in our homes long-term is a goal, but it doesn’t always feel achievable, particularly for older homeowners looking to enter retirement.
Despite decades working and saving, many older Canadians still don’t feel financially secure enough to fully retire. Perhaps a lot of your money is tied up in stock portfolios and you don’t want to take the risk of liquidating them, or perhaps you’ve done some planning for the future and realized retirement might not work long-term without some kind of reliable income. If you’re in this position, perhaps the thought has crossed your mind to sell your home and downsize in order to free up some money. But for many, this is a last resort. Who would want to give up their home—somewhere they’ve cherished and invested time, energy, and money into? It’s a difficult dilemma that a surprisingly large number of people face, but what if there was another option?
Introducing Reverse Mortgages
For people who need to free up some equity, but aren’t willing to sell their homes and leave their communities, another avenue exists. A reverse mortgage is a loan secured against a homeowner’s principal residence, allowing Canadians over the age of 55 to access up to 55% of the value of their house without selling it or giving up ownership of the property. It’s an exciting option that has gained increasing popularity over the years, becoming a common part of retirement plans for people of all walks of life.
The funds from a reverse mortgage are tax-free, and can be spent freely with no strings attached. People take advantage of this financial product in order to do any number of things, including:
Pay off their regular home mortgage
Cover emergency expenses
Provide a steady income stream throughout retirement
Financially assist loved ones
See the world
Pay for home renovations and repairs
Thanks to reverse mortgages, there’s a brand new world of opportunity for homeowners who are retired or are entering retirement. It’s always great to have an alternative option, and that’s why there’s also two types of reverse mortgages offered by Our Reverse Mortgage, so that you can choose a product that makes good financial sense for you and your family.
CHIP Reverse Mortgages VS. Income Advantage
The two kinds of products available for people looking to release equity from their homes are CHIP (Canadian Home Income Plan) Reverse Mortgages and Income Advantage secured loans. These offerings share a lot in common, yet also diverge in a few key ways that offer something for everyone. Let’s go over some of the major similarities first.
Similarities
Both products have a maximum loan-to-value of 55%. Loan-to-value, or LTV, is a term used in the financial sector that refers to the ratio between a loan amount and the value of the asset it’s secured against. What does this mean? When you take out a reverse mortgage, whether it’s through CHIP or Income Advantage, the amount you’re eligible to receive is proportionate to the value of your home, with a maximum LTV ratio of 55%. So if you take out a reverse mortgage on your home that’s valued at $750,000, you’ll be eligible to receive a loan of up to $412,500.
Both benefit homeowners looking to release equity from their property (without selling). This is the key selling point for both CHIP and Income Advantage Reverse Mortgages. Usually, the money that your home is worth would be locked away until you decided to sell it, putting homeowners in a difficult spot. With these products, you can liquidate a large portion of that money, gaining access to it to use as you wish, all while keeping your home. In other words, both products offer you the best of both worlds!
Both provide valuable financial options for people entering retirement. For people entering retirement, the list of possible financial options often seems to shrink. How are you going to get by without a steady source of income? How will you support yourself off of savings or a pension? Would you rather access the value of your home or stay in your community? These and other questions plague countless retirees, creating anxiety and uncertainty when you should be enjoying a well-deserved rest. Thanks to Reverse Mortgages, retired homeowners can receive substantial income to support themselves and their families without being forced to leave their home, allowing them to feel confident about taking the time off that they deserve.
CHIP and Income Advantage both have a lot in common. With both products, you can access a large part or even a majority of your home’s value, unlocking financial freedom and stability without having to part with your beloved home. So what makes these two offerings different?
Differences
One acts as more of a lump sum, while the other acts more like an income. The biggest difference between CHIP and Income Advantage Reverse Mortgages is the way they’re structured financially. You can think of CHIP as a lump sum of cash deposited into your accounts in a few larger payouts, almost as if you did sell your home. You have access to all of the funds at any time you wish, whether you choose to take the entire loan at one time or in smaller, unscheduled installments. Income Advantage on the other hand is more like having a new stream of income, with money being paid out on either a monthly or quarterly basis. This allows people some financial stability, as they can count on money coming in on a regular basis.
Initial advances are structured differently. Both CHIP and Income Advantage act as ways to convert the value of your home into income, but the specifics of this conversion differ between the two. With CHIP Reverse Mortgages, the initial advance is set at a minimum of $25,000, while Income Advantage loans require a slightly lower initial advance, at $20,000.
Payouts may be scheduled at your discretion. Similar to the previous point, the structure of ongoing payouts is a little different between CHIP and Income Advantage. CHIP allows clients to receive the money from their loan at any time, in any amount they wish. Income Advantage loans on the other hand provide more structure with the way they’re paid out, allowing homeowners to depend on a certain regular amount coming their way.
Closing fees vary. Both CHIP and Income Advantage Reverse Mortgages allow people to exit the agreement early by paying off the loan in full at any time. Where they differ is in closing fees, which apply to people making early repayment. For CHIP, this fee is usually set at $1795, and at $2495 for Income Advantage.
Choosing the right reverse mortgage for you
Even with all the resources and research in the world, it can be difficult to feel confident when making a big decision such as choosing a reverse mortgage. That’s why the best choice when weighing your options between CHIP and Income Advantage is to sit down with a knowledgeable mortgage broker. They’ll get to know you and your financial situation, and help clear up the details on these two similar but distinct financial products.
If you’re in search of an experienced, highly qualified mortgage broker, look no further than the industry experts at Our Reverse Mortgage. We not only have a deep working knowledge of the ins and outs of reverse mortgages, but we take pride in our ability to communicate the sometimes complex details clearly and concisely, letting you take the next steps with confidence.
If you’re a homeowner above the age of 55, you no longer have to choose between your home and your financial well-being, and it’s all thanks to reverse mortgages. If you have more questions about the differences between CHIP and Income Advantage secured loans, or if you’re ready to get started on the road to financial freedom today, don’t hesitate to contact us.