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The most frequent comment I hear from people regarding a Reverse Mortgage is that it is an "I hate my kids mortgage" People assume that home equity will be whittled away and nothing will be left as a legacy for their children. Let me dispel some of those rumors that are based on misinformation.

For homeowners age 55 or older who want to access the value in their home, the new Income Advantage plan from CHIP reverse mortgage offers a number of benefits:

Cash Flow Freedom. Clients may use the money any way they wish, and no payments (interest or principal) are required until the home is sold or both homeowners move out.

Ownership protection. Title remains in the homeowners’ names and they will never be asked to move or sell to repay their CHIP Home Income Plan.

Estate protection. The amount to be repaid is guaranteed not to exceed the fair market value of the home at the time it is sold, protecting the homeowners and their estate. In our experience, more than 99% of homeowners have equity remaining after repayment.

Tax benefits. CHIP Funds are tax-free and will not affect eligibility for government benefits such as Old Age Security. 

Preserve assets. Using CHIP funds enables your clients to avoid RRIF withdrawals above the annual minimum or the sale of non-registered investments.

How does it work?

The new Income Advantage from HomEquity Bank, the originator of the CHIP Reverse Mortgage, allows homeowners to receive lump sum payments, monthly payments or a combination of both. The flexibility of this new program allows people to plan carefully, reduce overall interest and maximize the preservation of home equity. Qualification is as simple and straightforward as a traditional Reverse Mortgage, homeowners over 55 can access up to 40% of the equity in their homes but have total control over how they receive funds. Since interest only accumulates on the amounts withdrawn (like a HELOC), annual interest is minimized vs accrual and compounding on a larger lump sum. Clients also have the option to make a 10% prepayment towards principle and interest once a year, on the anniversary date of the mortgage. 

Example: A retired couple has a $500,000 house with a $250,000 investment portfolio for an overall net worth of $750,000. They need additional funds to pay for home repairs and income to cover Home Care expenses, should they tap into their portfolio or leave it alone to grow and look for other solutions? They are not ready to downsize yet and do not want to rely on the help of their children who are working to save for their own retirement.

Solution: Income Advantage arranges to give the couple an initial lump sum of $10,000 to cover home repair costs and a monthly advance of $750. After ten years this is where they are at:

Money advanced over ten years is $100,000 plus interest for a total of $126,900.
Investment portfolio saw an overall return of 6% per annum and has grown to $447,711.92
Home has seen an average increase of 2% per year and has grown to $609,497.21

After ten year’s overall net worth has grown to $930,309.13

This is a general overview of what the Income Advantage can do and every situation is unique. In the end it is best to get qualified, professional advice and put together a plan that takes into account the whole picture.

Lanaya Houlden

CHIP Reverse Mortgage Specialist

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