Using a Reverse Mortgage to Increase Cash Flow
Meet Margaret (my fictitious widow):
Margaret, a widow, is struggling with her cash flow. Still relatively young at age 63 and in good health, she is concerned about her financial future as she is using up her savings more quickly than anticipated. She owns her home which is worth $504,000, but unfortunately she has an existing mortgage of $121,000 with bi-weekly payments of $248.00. Not yet eligible for OAS, she has been withdrawing $600.00 per month from her RRSP to make ends meet. This has increased her annual income to the point where she is not eligible to receive the Survivor Benefit and Guaranteed Income Supplement (GIS), as they are both income tested benefits.
Unsure what she should do going forward, she sought out some financial advice.
As a low income senior Margaret has few options. She could retain the existing mortgage and reduce the payments to the minimum, but in order to continue to make payments and have enough money to live on she would have to continue to withdraw funds from her RRSP. Long term this is not a viable solution. Replacing the mortgage with a Secured Line of Credit (SLOC) would reduce her monthly payments but would not provide her with the best solution and again she would need to rely on RRSP withdrawals. The remaining option was a reverse mortgage (CHIP Reverse Mortgage version) to eliminate her payments.
Margaret desires to remain in her home for as long as possible. She has been in the neighbourhood for many years and it is where her friends live and the services she utilizes are located.
After consideration Margaret decided the CHIP Reverse Mortgage was the best option for her needs. Easy to qualify and no worries about payments of any sort.
Subsequently, she applied and was approved for a CHIP Reverse Mortgage for $197,000 on her $504,000 home. She took an initial advance of $165,000 to pay off her mortgage of $121,000, thereby freeing up $500.00 per month in cash flow. She used the remaining funds to do some renovations/updates to her home and cover other bills and dental expenses. She doesn’t need to worry about any unplanned expenses or emergencies as she has $32,000 remaining CHIP funds to access when and if needed.
Margaret has now put herself into a much more favourable financial position. By eliminating her debt payments, she can now stop withdrawing money from her RRSP. That means she can leave her RRSP to grow, tax free, till it is time to convert to a RRIF. Also, by stopping her RRSP withdrawals she has now reduced her taxable income so she will qualify for both the Survivor Benefit and GIS, thus increasing her cash flow.
Now she can remain in her home as long as she desires with no financial worries and peace of mind. And should home values continue to rise, even at a conservative pace, she will have as much if not more equity in her home when the times comes to sell, for her or her estate.
What are the advantages of a CHIP Home Equity Plan mortgage?
The advantage of a CHIP reverse mortgage is that you do not have to make any principal or interest payments for as long as you or your spouse live in your home.
Eligible borrowers are given the option of receiving all the money you’re eligible for in one lump sum advance, or you can receive planned advances over a set period of time. You can even combine a lump sum advance at the beginning with ongoing advances over time.
No payments on your CHIP reverse mortgage are required while you or your spouse live in your home. The full amount only becomes due when your home is sold, or if you move out.
You maintain ownership and complete control of your home and will never be asked to move or sell to repay your CHIP Home Income Plan.
How can I apply for a CHIP Mortgage?
If you think the CHIP Reverse Mortgage is for you simply contact us for a no obligation consultation to confirm your eligibility for the Canadian Reverse Mortgage Program.