Reverse mortgages in Canada have been gaining visibility, especially among seniors looking for ways to unlock the value of their homes without selling. The most recognized option is the CHIP Reverse Mortgage, offered exclusively through HomeEquity Bank.
On paper, it promises tax-free cash with no monthly payments—sounds great, right? But in practice, it’s not always the best solution. Let’s unpack what the CHIP program really offers, and why it may not be the win-win it first appears to be… read on, or watch a recent podcast episode we recorded about the topic:
What Is a CHIP Reverse Mortgage?
A CHIP (Canadian Home Income Plan) Reverse Mortgage allows Canadian homeowners aged 55 or older to borrow up to 55% of their home’s value without giving up ownership or moving out. Unlike a traditional mortgage, you don’t make monthly repayments. Instead, the loan (plus interest) is repaid when you sell your home, move out, or pass away.
Who Qualifies for One?
- Age: All homeowners listed on title must be at least 55 years old.
- Home Type and Value: Primary residences that meet minimum value thresholds qualify.
- Location: Homes in major urban centres like Toronto, Vancouver, and Calgary tend to be eligible, while rural properties may not.
How Does It Work?
Once approved, you can receive funds in a lump sum, as recurring payments, or as a combination. You’ll retain full ownership and can use the cash however you choose—whether that’s covering medical costs, funding renovations, or helping out family.
Importantly, no payments are required until the home is sold. However, interest accrues over time, and since you’re not paying it down monthly, it compounds quickly.
Costs and Interest Rates
- Interest Rates: Typically higher than traditional mortgage or HELOC rates—often hovering around 7%–9%. Because interest is compounded, the longer the loan remains unpaid, the more it grows—this can quietly erode a large portion of your equity without any monthly statements to remind you.
- Fees: Expect to pay out-of-pocket for a home appraisal, independent legal advice, and administrative setup fees. These can collectively total over $2,000 depending on your province and property value.
- Closing Considerations: Unlike a traditional mortgage, you won’t see principal reduction over time. In fact, you’ll see the opposite: your debt increases while your equity shrinks—especially in markets where property appreciation has stalled.
In short, you’re borrowing against your future—and that borrowed amount can grow significantly over time. Seniors who don’t fully understand how compounding interest works may be surprised to see how much is owed when the mortgage comes due. It’s essential to crunch the long-term numbers or consult a financial planner before committing.
Repayment and the No Negative Equity Guarantee
- You sell your home
- You move out permanently (e.g., to long-term care)
- You pass away
When any of these events occur, the reverse mortgage must be paid off in full—typically through the proceeds of the home’s sale. If there’s any equity left after repayment, it goes to your estate or beneficiaries. But depending on how long the loan was active, that leftover amount may be significantly less than expected.
CHIP includes a No Negative Equity Guarantee, which ensures that you (or your estate) will never owe more than the fair market value of your home—so long as you’ve complied with the loan conditions (like maintaining the property and paying property taxes and insurance). While this offers peace of mind, it’s important to understand that this guarantee doesn’t protect your remaining equity—it only caps your losses if the loan balance exceeds your home’s value.
Put differently: you won’t go underwater, but you might come out with far less than you—or your heirs—had planned for.
CHIP Reverse Mortgage vs HELOC: Key Differences
| Feature | CHIP Reverse Mortgage | HELOC (Home Equity Line of Credit) |
|---|---|---|
| Monthly Payments Required | No | Yes (interest-only minimum) |
| Credit Check | Not required | Required |
| Interest Rates | Higher (7–9% typical) | Lower (typically 6% or less) |
| Access to Funds | Lump sum or instalments | As needed, up to a credit limit |
| Repayment Timeline | Due on sale, move, or death | Monthly; full balance due if closed |
| Home Ownership | Retained | Retained |
| Estate Impact | Can reduce inheritance | Minimal if well-managed |
| Best For | Older homeowners with limited income | Homeowners with strong credit and income |
Pros:
- No Monthly Payments: Helpful for those on fixed incomes, allowing retirees to stay in their homes without the stress of monthly bills.
- Tax-Free Cash: Doesn’t impact Old Age Security (OAS) or Guaranteed Income Supplement (GIS) eligibility, which can be a major relief for low-income seniors.
- Flexibility: Funds can be used for anything—from medical expenses to home improvements to helping family members financially.
Cons:
- High Interest Rates: These are notably higher than those offered with traditional mortgages or HELOCs. Over time, the cost of borrowing can grow dramatically.
- Compounding Debt: Interest is added to the principal regularly, which means you’re paying interest on interest. This can result in a much larger debt than anticipated.
- Reduced Estate Value: Because the loan must be repaid from the sale of the home, there’s often less inheritance left for your loved ones.
- Better Alternatives May Exist: Depending on your situation, you might qualify for a HELOC with better terms, consider downsizing, or explore other equity-based strategies that preserve more of your wealth.
A Note from Us:
We’ve seen cases where a CHIP mortgage helped a senior stay in their home during difficult times—but we’ve also seen families surprised by how little equity remained when the house eventually sold. In our experience, CHIP reverse mortgages work best as a last-resort option—not a first pick.
If you don’t need the funds urgently, it’s worth taking the time to speak with a financial advisor or broker who can walk you through safer, more flexible alternatives. The convenience of no payments today could come with a heavy price tag tomorrow.
Real-Life Example
Meet Joan, a 74-year-old homeowner in East York. Her bungalow was paid off, but rising property taxes and a fixed pension were straining her budget. She accessed $150,000 via a CHIP reverse mortgage to cover renovations and set up an emergency fund.
Five years later, when she moved into assisted living, the mortgage balance had ballooned to $204,000. Her family sold the home for $765,000—still plenty left over, but significantly less than if she’d explored a traditional HELOC at the start.
Alternatives to Consider
- Home Equity Line of Credit (HELOC): Often overlooked, HELOCs offer competitive interest rates and allow you to borrow only what you need, when you need it. Unlike a reverse mortgage, you pay interest only on the amount used, and repayment terms are typically more transparent.
- Downsizing: Selling your current home and moving into a smaller, more manageable property can free up substantial equity. While emotionally difficult, it often makes financial sense, especially in urban centres like Toronto where detached homes command high prices.
- Renting Out Part of Your Home: Turning a basement into a legal secondary suite or creating a laneway home can generate consistent rental income—providing cash flow without giving up equity. Plus, it may even boost your property’s value.
- Refinancing with a Traditional Mortgage: If you’re still in good health, under 75, and have decent credit, refinancing with a conventional lender could be a better option. It keeps your interest rate lower, your equity intact, and repayment schedules more predictable.
- Government Assistance Programs: Depending on your income and province, you may be eligible for senior-focused grants or home renovation rebates. These programs can cover accessibility upgrades, property tax deferrals, and more—reducing your need to borrow in the first place.
FAQ: CHIP Reverse Mortgages
Can I get a CHIP Reverse Mortgage if I still have a mortgage?
Yes, but the existing mortgage must be paid off as part of the reverse mortgage process. CHIP funds are often used to clear any remaining balance before releasing the rest to the homeowner.
Do I need to pass a credit check to qualify?
No, a CHIP Reverse Mortgage does not require traditional income or credit verification. Eligibility is primarily based on age, home value, and property location.
Can I use the funds from CHIP for anything?
Yes. The funds are yours to use however you choose—common uses include supplementing retirement income, paying off debts, renovating the home, or assisting family members financially.
How long does the approval process take?
It typically takes 1 to 3 weeks from application to funding, depending on how quickly documentation is provided and appraisals are completed.
What happens if I outlive the loan?
There is no expiration date on the loan. It remains in effect until the homeowner sells the property, moves out permanently, or passes away. The loan is then repaid from the sale proceeds.
How much can I borrow with a CHIP Reverse Mortgage?
You can typically borrow up to 55% of your home’s appraised value. The exact amount depends on your age, the home’s value and location, and your existing mortgage balance (if any).
Do I still own my home?
Yes, you retain full ownership of your home. The lender places a lien on the property, just like with any mortgage, but title remains in your name.
What happens if the property value drops?
The No Negative Equity Guarantee ensures you or your estate won’t owe more than the fair market value of the home—even if housing prices decline. However, you may still lose a significant portion of your equity to interest costs.
Can I move and keep the CHIP loan?
No. The CHIP Reverse Mortgage must be repaid in full if you sell your home or permanently move out. It is designed for homeowners who plan to age in place.
What kinds of homes qualify?
Detached homes, townhouses, and select condos in urban areas typically qualify. Rural or unusual properties may be ineligible or receive lower borrowing limits.
Is a CHIP Reverse Mortgage safe?
Yes, in terms of regulation and lender reputation—CHIP is offered through HomeEquity Bank, a federally regulated Canadian bank. However, while it’s safe, it’s not always the most financially sound option due to high interest rates and equity erosion over time.
Can I lose my home with a CHIP Reverse Mortgage?
Not if you meet your obligations. You must maintain the property, pay property taxes, and keep it insured. Failing to do so can breach the terms of the loan, potentially leading to foreclosure.
How is a CHIP Reverse Mortgage different from a HELOC?
With a HELOC, you can borrow as needed and only pay interest on what you use—but it requires income verification and regular payments. CHIP doesn’t require payments, but charges higher interest that compounds over time and is repaid when the home is sold or the owner passes away.
Will it affect my government benefits?
No. CHIP proceeds are not considered taxable income and won’t affect OAS or GIS benefits, which makes them appealing to lower-income seniors who want to supplement their cash flow.
Can I repay the CHIP Reverse Mortgage early?
Yes, but there may be early repayment penalties depending on how soon you repay. It’s best to discuss options with a CHIP specialist or financial advisor if you expect to sell or repay the loan within the first few years.
Final Thoughts
CHIP reverse mortgages can be useful—but they aren’t for everyone. If you’re equity-rich but cash-poor, they offer an immediate lifeline. But if you have time to plan and qualify for lower-cost alternatives, it’s worth exploring those first.
Before signing on the dotted line, speak to a trusted financial advisor, mortgage professional or simply contact us!
The right choice will depend on your age, your needs, and your long-term goals. Just because you can unlock your equity doesn’t always mean you should.
