Chip reverse mortgage is referred to as the Canadian Home Income Plan (CHIP) reverse mortgage, which serves as an important means to provide accessibility to cash after retirement. Typically, chip reverse mortgage loan plans are offered to senior individuals who are 60 years or more. This is applicable to both the partners. The main advantage of this plan is that whereas in forward mortgage loan programs, the borrower has to shell out money to the lenders. In this case (chip reverse mortgage) loan plan, the lender gives money every month to the owner of the house.
The house, whose equity is to be made use of, has to be owned by the borrower. Once the valuation of the house is carried out, depending on what the value of the house is, about 40% of the valuation is extended as the loan amount.
The borrower may choose to opt for any one or a combination of the following disbursement methods.
Lump sum
Periodical payments
Combination of both of the above.
The Chip reverse mortgage loan amount does not attract any income tax as this is regarded as a loan and not an income. However, it does substitute income. The proceeds of the Chip reverse mortgage loan is used for various purposes.
The significant benefit of a Chip reverse mortgage loan program is that the one availing the loan is not required to pay back the loan money as long as he is living in the house or is alive. However, there is one condition and that is the borrowers residing in the house are expected to maintain the house by paying the taxes and other associated taxes related to the property. The payment of taxes can be made from the loan amount.
The senior individuals opting for the loan can still retain the ownership of the house. On the borrower's death the spouse is allowed to continue residing. In the event when none of the applicants are alive, the loan has to be repaid. This may be done either by selling the house or paying back the loan amount. The heir(s) are entitled to repay the money. If the house is sold for an amount, which is in excess of the loan amount, the after paying the loan, the amount, which remains is taken by the heir(s). If the house gets sold for less money, the insurance company pays the amount, which is falling short.