Dodi Kozak on the CHIP Reverse Mortgage by HomeEquity Bank

Adrian:

I'm joined today by Dodi Kozak who is with HomeEquity Bank. You may or may not know that financial institution's name specifically, but what you will know is its flagship product, which is the CHIP reverse mortgage product. Welcome, Dodi.

Dodi:

Thank you, Adrian.

Adrian:

Now Dodi, before we get into the nitty gritty of this very interesting mortgage product, would you tell us a little bit about yourself and about home equity bank and/or the CHIP mortgage program?

Dodi:

Sure. So about me, I am a former Winnipeg. I was born and raised in Manitoba and a graduate of the University of Manitoba. Go jets, go bombers. I'm now living in Calgary and have been in the financial services industry for 25 plus years. And I'm a BDM with HomeEquity Bank for the past three years. So HomeEquity Bank is a federally regulated Canadian bank that was founded in 1986 and it's the provider of the CHIP reverse mortgage. A lot of people want to know what CHIP stands for and it stands for the Canadian Home Income Plan. As a business development manager, my role is to work with mortgage brokers, to help them understand our products and our processes, so they can identify and assist homeowners who would benefit from a CHIP reverse mortgage.

Adrian:

Now, I guess what is a reverse mortgage and who is it for?

Dodi:

Oh, good question. The reverse mortgage with the CHIP reverse mortgage is a purpose-built financial solution available to all Canadian residents who are 55 years of age and older who want to access the equity in their home. So we can release up to 55% of the home's value, do an appraisal to determine how much they qualify for. The home must be their primary residence and have a minimum value of at least $150,000. The owners must pay their property taxes and home insurance, keep their property well-maintained. And in fact, statistics show that 93% of Canadians want to stay in their homes and the neighborhoods that they love and a CHIP reverse mortgage allows them to do just that.

Adrian:

Now, what are some of the key benefits of a reverse mortgage?

Dodi:

You got a long time? I got a lot of key benefits.

Adrian:

Please.

Dodi:

So the biggest one is that the client maintain title, and ownership of their home. And that has been a worry for some people, but they always maintained title and ownership. The proceeds are tax free, so that the funds don't affect government pensions or benefits such as OAS, PPP or GIS. A big one is that the clients are not required make monthly payments, which can be difficult with the reduced income in retirement. We don't qualify applicants under traditional lending guidelines, and that helps people with reduced incomes in retirement to obtain financing and be able to move forward. We can also customize how they want to receive the funds. They can get them in a lump sum or a monthly advance or combination of both. And the best part is they can use their funds for anything they want or need to.

Dodi:

What I'm finding the top uses are, is that they're using the money to pay off their existing mortgages and debts. They're also renovating to allow them to age in place by adding a stair lift, wheelchair ramps, walk-in showers, et cetera, and also to supplement their income. Some of the other common uses are for health care expenses, travel, when we could do that, for investing, for right-sizing, maybe they need to pay for a new roof or their car breaks down, or they'd like to purchase a rental or a vacation property. And we've been getting a lot of calls from parents and grandparents who want to help their children and grandchildren with a down payment on their first home, perhaps pay for their tuition or provide a living inheritance so that they can create experiences and make memories together.

Adrian:

Now you spoke about some of the benefits. There are probably some misconceptions about reverse mortgages. Are there any risks associated with a reverse mortgage?

Dodi:

The risks that there are have been mitigated associated with compounding interest. We have a no negative equity guarantee and that's one of the things that people worry about is at the end of the day, there won't be any money left in the property to leave as an inheritance or after the sale or after they vacated their home. But with the no negative equity guarantee, that means that the amount that they pay on the due date, when the house is sold or they leave the property, will never exceed the fair market value of their home. So that takes that out of the picture, which is a great relief for a lot of people. But you know what I've seen as one of the risks? Is that a homeowner doesn't consider CHIP early on enough in the process and sometimes the debts that they have are greater than the amount that they're eligible for, for CHIP. So for that reason, I would recommend that they contact you for a free estimate as part of their retirement planning process before they get into the whole nitty gritty of where are we going to get money from in retirement.

Adrian:

Now in Winnipeg, you may or may not know, we are seeing a 20 year average of a 6.5% annual increase in single family home values. That being said, some people may go down the road of a CHIP reverse mortgage earlier than later. And for those who do, is there a way to, again, access that equity growth down the road? Or is it a one-time transaction?

Dodi:

No, it's absolutely not a one-time transaction. And the way our formula is calculated is just the older you are, the more you qualify for to get equity out of your home. And we also know that homes appreciate, like you said, in value over the years. Because we're conservative at being at 55% loan to value, there's still that 45% that continues to grow and is unencumbered by any kind of mortgages or debts. So there's definitely an opportunity for them every five years, every time they reach any milestone to be able to qualify for additional income from the CHIP reverse mortgage. And we do get a lot of calls from clients, "Hey, I was 65 when I got my mortgage. Now I'm 70. What can I qualify for now?" And there's usually money for them available because of the demand in the marketplace and the growing equity that they have.

Adrian:

We spoke about mitigating risk. And I know one of the things that is important to home owners is sometimes to offset the borrowing that they do against their real estate asset with life insurance. Now, traditionally, we always offer a mortgage protection plan with all of our mortgages, but is there anything specific as it pertains to life insurance that is offered by HomeEquity Bank?

Dodi:

No, we strictly deal with the mortgage part of it, but we do have partners such as yourself, which can help the clients with those other needs that they may have to be able to do the full financial picture for their retirement.

Adrian:

Are there any costs associated with obtaining a reverse mortgage?

Dodi:

Yes, there are, just like many other mortgages. Of course, we'd want to have an appraisal done to confirm the true property value. And that cost is anywhere around 350, depending on the location or where they're located. They're also set up fees and that would be for doing a title search to see who's on title, to put up on title and remove the current title holder or the current lender, if that applies. There're registrations to be done, there're debt payouts, et cetera. And that is cost of around 1795. And then, we also get our clients, we make sure that they meet with an independent legal advisor of their choice before funding to ensure that they understand how the reverse mortgage costs. And that would be anywhere between $300 to $600, depending on the solicitor. Now all these costs don't have to come out of pocket. They can all come out of the reverse mortgage proceeds.

Adrian:

Now, just as a summary, we talked about how the equity is tax-free money. One maintains ownership of their home. You can use the money any way that you wish and you keep all the remaining equity in your home. It all sounds wonderful. What does it take to qualify for a CHIP reverse mortgage?

Dodi:

That's also one of the beautiful parts of it. Unlike a traditional mortgage, we don't look at what their debt ratios are. We don't look at a number of things other than are you 55 years of age and older? Do you own your own home? Is your home worth $150,000? Let's find out how much you can qualify for. It's a very simple process and it's something that they can do at any time for a free estimate with yourself, if they are curious as to when they would like to start this or what they would qualify for now.

Adrian:

And best of all, there's no repayment while living in your home.

Dodi:

That's correct. Now, if they want to, they can make a monthly interest payment, which reduces that interest compounding at the end of the life of the mortgage, or they can make a lump sum of 10% of the amount outstanding anytime once a year during the mortgage. So if they have a hundred thousand dollar mortgage, every year, they can make a lump sum payment up to $10,000 to again, lessen that impact. And we've actually had people that have paid off their reverse mortgages while they're living in the property.

Adrian:

Well, thank you so much Dodi for coming on this episode of I Love Winnipeg Real Estate. I have one final question for you. One that I ask everyone, what do you love about Winnipeg real estate?

Dodi:

I just love the variety of different places. There are the neighborhoods. I love all the amenities. I do miss Winnipeg. I miss the big trees and the parks on the lakes. So I love Winnipeg real estate, because it's such a combination of old and new and everything comes together in a rich and vibrant culture.

Adrian:

Dodi, I thank you again and have a great day.

Dodi:

Thank you, you as well, Adrian.