Articles

Covering Home Care Costs

Gena, 78, who had recently become a widow, lived in central Toronto and was worried about covering her home maintenance costs and realty tax costs on an ongoing basis. Janet, 86, had been widowed for eleven years and had some health issues that meant she required home care assistance to allow her to continue to live independently in her own home.

Neither Gena nor Janet wanted to touch the income producing investments that provided the fixed income from which they had planned to live on for the rest of their lives.

Gena and Janet were both surprised at the level of equity they had in their home as their mortgages had been paid off years ago. To raise the additional income they required, they turned to a reverse mortgage from the Canadian Home Income Plan (CHIP), a wholly owned subsidiary of Home Equity Income Trust.

The average age of someone applying for a reverse mortgage is approximately 72 years. Typically, they use a reverse mortgage need to do so to finance home care or travel, or provide their children with financial assistance.

Reverse mortgages, which have higher interest rates, should not be used as a short-term solution. For example, if seniors expect that their home will be sold in the near future to facilitate a move into a nursing home, a reverse mortgage is not recommend as these often have prepayment penalties within the first three years.

The maximum amount on a reverse mortgage is $500,000, and the minimum is $20,000. There is no repayment until the house is sold or death. You can never owe more than the fair market value of the house at the time the loan is repaid. The interest on a reverse mortgage is cumulative and includes all the cash advances plus all the interest on them. However, reverse mortgage holders have the option of paying down some or all of the interest annually.

According to CHIP’s website, most homeowners have money left over when the reverse mortgage is repaid. On average, 50% of the equity in their home remains after it is sold.

CHIP considers itself the leading national provider of reverse mortgages, which are available through most major financial institutions and mortgage brokers. It has provided about 11,000 reverse mortgages valued at roughly $700 million since 1986.

Source: Excerpts from the Toronto Sun & www.chip.ca