How a reverse mortgage affects home equity

Turn your equity into cash

A reverse mortgage allows you to turn the equity of your home into cash.

Money when you need it

Receive your money the way that works best for you. One-time lump sum or monthly payments.

Tax-free source of income

Increase your income without impacting your Old-Age Security (OAS) or Guaranteed Income Supplement (GIS).

As a homeowner considering a reverse mortgage, home equity is an essential component, as the amount of equity in your home will determine the size of the loan available to you.

What does home equity mean?

Home equity is the amount of a home’s value that is owned outright. It can be calculated by taking the appraised value of your home and deducting all loans that are outstanding against it, such as a traditional mortgage, home equity line of credit, or a home equity loan. As an example, If your home has been appraised at a value of $900,000 and you have a mortgage of $220,000, a home equity line of credit of $20,000, and a home equity loan of $25,000, the amount of equity in your home is $635,000: $900,000 – ($220,000 + $20,000 + $25,000) = $635,000.

A home equity reverse mortgage is a loan secured against your home and is available to Canadian homeowners aged 55+. Home equity is a critical component of the reverse mortgage process because – as the name suggests – the amount of equity determines the size of the home equity loan available to you.

What is a reverse mortgage – and why should you consider it?

Reverse mortgages are a popular choice among Canadians aged 55+, and with the key benefits they offer, it’s easy to see why.

The CHIP Reverse Mortgage allows you to cash in up to 55% of your home’s value, received in a tax-free lump sum or regular tax-free payments, while always maintaining ownership and control of your home. Considering that the proceeds are tax-free, it’s often a more financially savvy choice since investments and other forms of income can have tax implications.

The CHIP Reverse Mortgage is an ideal solution for those not wanting to downsize, which can be costly both financially and emotionally as you are losing the home you love and the neighborhood you’re used to. With the CHIP Reverse Mortgage, you can use the money for anything, from health care costs, renovations, paying off existing debt, travel, helping family, and virtually any purpose you decide upon.

Regular mortgage payments are not required until you no longer live in the home, and HomeEquity Bank offers a No Negative Equity Guarantee*, which ensures that if you meet your property taxes and mortgage obligations, HomeEquity Bank guarantees that the amount owed on their due date will not exceed the fair market value of your home.

How does a reverse mortgage affect home equity?

Any loans taken out against a home will affect the amount of equity that remains, reducing it by the amount of the loan. Although reverse mortgage customers don’t have required mortgage payments, the amount they owe increases every year due to the annual interest charged on the amount borrowed. They can, however, make interest and lump-sum payments if they wish to and the good news is that the home’s value typically continues to appreciate.

Financial illustration tool

With HomeEquity Bank, you have many flexible options to help you get the most out of the equity in your home and live a better retirement. Using information such as your age, gender, full address, home type, and estimated home value, it’s easy to find out how much you may qualify for and configure a solution tailored to your needs.

This site provides further information and you can obtain a Free e-booklet on the Reverse Mortgage Advantage.

You can also call me direct at 250-861-8758

Neil “Mortgage-Man” McJannet

Neil was born and raised in Manitoba, Canada and as a result, is hardy in nature and does not give up until a deal is done. After graduating from Dakota Collegiate in Winnipeg in the mid 60’s he went to work at the TD Bank where he spent 28 years, with the last 10 years in their mortgage department in Toronto.