The CHIP Reverse Mortgage, a tax-friendly retirement solution

With 55+ Canadians facing rising costs and uncertain income, the CHIP Reverse Mortgage by HomeEquity Bank is a smart solution you can offer your clients

The CHIP Reverse Mortgage, a tax-friendly retirement solution

More than 1 in 5 employed Canadians are between 55 and 64. As this record number of older workers nears retirement, they face increased uncertainty about both their cost of living and the income they will have on hand.

For retirees on a fixed income, worries about taxes, utilities, prescriptions, and day-to-day expenses can impact their mental well-being and take the shine off what are supposed to be their “golden years”.

Fortunately, there are solutions that can address these concerns, such as the CHIP Reverse Mortgage by HomeEquity Bank. A reverse mortgage is emerging as a popular option for 55+ Canadians that allows older Canadians to access the equity they've built up in their homes without having to sell or move.

With the CHIP Reverse Mortgage, no monthly payments are required, and your client receives the funds tax-free, meaning it won’t affect the marginal tax rate on their pension. 

Planning ahead

These are uncertain times for all Canadians, particularly for people approaching retirement, as they calculate what they need and what income they will have to meet those needs. Statistics suggest the results of those calculations will be sobering for many.

However, with more than 70% of Canadians owning their homes, research also points to a potential solution.   

Tapping into home equity with a reverse mortgage can be an attractive option for Canadians worried about retirement.

Tax benefits

The CHIP Reverse Mortgage is a financial product designed specifically for Canadian homeowners aged 55 and better. The majority of your clients' wealth will typically reside in their investment portfolios and homes. However, taxes come into play when generating cash flow from investment portfolios and registered plans. For instance, selling a non-registered investment that has appreciated will result in a capital gain, which may cause a reduction in income-tested benefits. Certainly, clients can access their home equity wealth through mortgages and lines of credit, but these options require proof of regular income, which can pose a challenge for retirees.

The CHIP Reverse Mortgage solution can help Canadians 55+ preserve their tax credits and other government benefits. Since the funds received from a reverse mortgage is not taxable, it doesn’t affect their eligibility for benefits such as Old Age Security (OAS) or the Guaranteed Income Supplement (GIS).

Pension income

A reverse mortgage can be a helpful supplement to a retiree's existing pension income. Although Registered Retirement Income Funds (RRIFs) are a common source of retirement income for older Canadians, they are subject to minimum withdrawal rates and are taxed as regular income.

A reverse mortgage can reduce the need to increase RRIF withdrawals by providing an alternative source of tax-free income, thereby preserving those RRIFs and extending the duration of those retirement savings.

Keeping the home

Selling a home with many years of precious memories can be a very tough decision to make. Unfortunately, this may be unavoidable for those who need to fund their retirement.

However, the CHIP Reverse Mortgage gives Canadians access to their equity locked up in the home without forcing them to sell and move elsewhere. This is also useful for those who hope to pass their home on to their children. While the reverse mortgage will need to be repaid at the death of the final spouse, the legal title and remaining home equity are eventually passed on to their beneficiaries.

HomeEquity Bank reverse mortgage products come in a variety of shapes and sizes. Canadians 55+ can opt for a lump sum (CHIP Reverse Mortgage), a subsequent advance (CHIP Max), planned advances monthly or quarterly (Income Advantage), or a combination of these options.

Are you ready to help clients explore all retirement income solutions with the CHIP Reverse Mortgage? Visit us online or contact a Business Development Manager today.