That’s a spread of 2.50 percentage points over prime rate, compared to a whopping 6.00 percentage point spread just three short years ago.
(Click chart to enlarge)
HomEquity Bank marketing director Arthur Krzycki explains, “…We want to make it easier than ever for mortgage professionals to recommend the CHIP Home Income Plan solution to Canadian homeowners 55 and older.”
It’s working. The more competitive CHIP’s rates become, the more financial professionals are viewing reverse mortgages as mainstream solutions when advising seniors in a cashflow bind.
In addition to its 5-year rate, CHIP also has a 1-year fixed promo at 4.25%, running until August 31, 2012. It’s for new clients only. Existing clients who are up for renewal get different rates.
“Consumers who are able to and want to pay interest benefit from a 50 bps discount on their rate,” Krzycki adds. (That discount applies to their following mortgage year.)
To qualify for this half-point interest savings, folks can make as few as one lump sum interest payment each year. Those payment(s) should total their full interest for the mortgage year (not the calendar year) and be received by HomEquity Bank by the client’s annual anniversary date.
If folks prepay their interest, CHIP’s short-term rates are just 1/2 point above most HELOC rates. According to HomEquity Bank, however, most reverse mortgage customers don’t pay their interest in full each year.
Either way, CHIP approval requires no income, credit or medical qualifications. And unlike a HELOC, CHIP borrowers don’t need to make payments. That’s true for as long as the client owns and lives in the home.
Setup costs on a 5-year term currently range from $1,270 to $1,795, depending on the cost of the appraisal and independent legal advice.
CHIP reverse mortgages are certainly not suitable for all seniors, but they’re a lifesaver for some. You’ll want to speak with an experienced mortgage planner and review all other financing options before deciding.
Factoid: CHIP’s lowest rate of all time was a 3.75% variable rate. It offered that special before the Bank of Canada started hiking in June 2010. Its variable is now 4.95%.