It is a ONE TIME LUMP sum and no payments are required..PROVIDED the owner continues paying property taxes and has fire insurance in place...BUT if the owner blows it all on this and that, vacations etc in the last
few years of their lives..
the RM money is GONE, and although the person still doesn't have to pay a cent, the interest at 5.33% per annum on the FULL AMOUNT BORROWED on this REVERSE MORTGAGE keeps accumulating. This can
be very significant, almost as much as was borrowed in the first place..depending on the number of years
the RM is valid.
Once the owner is too old to live in their home and needs assisted care, as has to sell/move..the MONEY BORROWED INITIALLY PLUS THE INTEREST accumulated over the years is due and payable.
If the senior does not have that kind of money..they take your home!
This scheme is only for those that have no children and would leave their estate to the government in any case.As they explain it in the CHIP brochure..its tax free spending money in the last say.,15 to 20 years of your life using UP TO 55% of the equity in your home..... and assuming you are living in a paid off mortgage free home that has grown consideral value in todays real estate markets.They are in no different position after you came in to their office as they were before you came in, but you are now acruing a very large interest spread on this transaction. Doesn't sound like something I would ever do, but I am the type of person who does not like paying for nothing, and can usually figure out where the pebble is in these types of shell games.
In Toronto for instance..that $1,000,000 appraised home could fetch you as much as $500k in a RM scheme.
But be sure you are ready to give it up in 15-20 years time, when you are no longer capable of living in it due to health issues..or death as the case may be. The reason they can only give you up to 55% of the current
appraised value is that IF the owner can't repay the RM when it is due and payable, the other 45 to 50% is
used as collateral for their RM and they can use that to sell your home from under you as mortgage default.But the difference is that you have to pay back what you borrowed on the HELOC on a regular basis, not so the CHIP RM scheme.Now obviously over time this $500 per month draw, plus the interest will start to add up, but in most cases you will need to live a very long time before it becomes the same level as the reverse mortgage a person would take on their very first day.Yes, these RMs are only for those that want to spend their children's inheritances while they are living. The other side bonus, (not sure about this though), is that the estate can be spent down to nothing..reducing or even eliminating the probate taxes.Reverse mortgages are only for people who need lump sum capital (not income) and don't mind spending a very large amount of their heir's inheritance to provide a fairly small amount of financial benefit for themselves. Here I am talking about people without children as well as people who have no intention of providing any estate for the children they have.