HomEquity Bank CHIP Home Income Plan HELOC Comparison - Reverse Mortgages

The HomEquity Bank site makes this statement : Why A Home Equity Line Of Credit May NOT Be Your Best Choice, and   If You’re A Canadian Homeowner, 55+, A Reverse Mortgage May Be Better Than A Home Equity Loan.  (Much, Much Better!)

They go one to explain why (see italics below) - we have added some counter thoughts (blue text).

"A Reverse What?
A reverse mortgage is a loan, created especially to allow homeowners 55 or over, to access the equity in their home, without having to sell or move. In many cases, it’s a better option than a traditional Home Equity Line of Credit (HELOC). Here’s why!"

www.investing101.ca: A Home Equity Line of Credit (HELOC) does not require you to sell or move either.  So is this a scare tactic by the HomEquity Bank advertisers /spin-doctors to scare seniors toward their product?)

"No Regular Payments
When you borrow through a home equity line of credit (HELOC), you have to make regular payments (with interest) often for a very long time, which may be hard to do on a fixed or limited income. With a reverse mortgage, such as the CHIP Home Income Plan, you can make regular payments, if you so choose - but you don’t have to."

www.investing101.ca: HELOC's require minimum regular payments of the interest but not the principal (unless you want to) and so a HELOC is a better, more-flexible option.  Ironically, it is the "no regular payments" of the CHIP product that will but you in debt for a very long time.  HomEquity Bank advertisers / spin-doctors are having it both ways : its bad to have regular payments on a HELOC, but hey, they offer that too.  If it's so bad to pay off part of your loan, why do they offer that too?)

"You can stay in your home as long as you want. With a Home Equity Loan, if anything changes tied to your financial situation, you could be forced to sell your home to pay off the loan. With a CHIP Home Income Plan, you can never be forced to sell or move. Ever."

www.investing101.ca: if you only borrow what you can afford to repay the interest on, being forced to sell to pay off a HELOC is unlikely.  But if rates rise and you are squeezed paying the HELOC interest, why not consider the CHIP plan then?  Not now.  After all HomEquity Bank suggests that you use their product to pay off loans - there is no reason you could not pay off your HELOC (which unlike the CHIP reverse mortgage, didn't balloon in compound interest debt in the early years).  Also consider other possibilities, like life insurance payouts if one partner passes on - those can be used to pay off the HELOC or part of it.

"No Credit Check
Qualifying for a Home Equity Loan usually requires undergoing a rigorous credit check and meeting certain income qualifications. There are no credit checks or income qualifications required for the CHIP Home Income Plan."

www.investing101.ca: apply for your HELOC before you retire so you can quality more readily when you are earning income.  Yes, that means planning ahead which is great thing to do for your financial planning.  Also, if you are rejected due to poor credit score, maybe you can't really afford to be borrowing?  You could consider downsizing to free up equity with no strings attached, instead of borrowing with CHIP)

"Get the Money you Need
With Home Equity Loans, often you can’t get the amount of money you really need.
With a reverse mortgage, like the CHIP Home Income Plan, you can borrow up to 50% of the value in your home."

www.investing101.ca: again, apply for your HELOC before you retire so you can quality more readily when you are earning income.)

So don't rush into a CHIP reverse mortgage unless you have considered the options.  Get some independent advice first.  The HomEquity Bank promotional material does not provide a fair, balanced view of the HELOC alternative.  The CHIP product may be OK for some, but many people will have other options.

For more information:

  • learn about HomEquity Bank CHIP Home Income Plan at www.chip.ca
  • alternatively Alt Mortgages provides information at ReverseMortgages.ca
Alt Mortgages appears to be open to products besides CHIP and may be worth a look:

"By using ReverseMortgages.ca, you become our client, which entitles you to our unbiased advice. Since there is no “cookie cutter” mortgage solution, we conduct a needs analysis when you call us to determine if a reverse mortgage (i.e., CHIP) is right for you. Only then will we start an application for you with a reverse mortgage lender. In the event that we discover you would be better suited for an alternative mortgage product (like a HELOC), we will advise you on the appropriate next steps to take. If we determine that your current mortgage product is the best option for you, we will not try to get you to switch mortgage lenders."