CHIP Reverse Mortgage effective way for homeowners 55+ to gift down payment

This article was produced in partnership with HomeEquity Bank.

To put it mildly, the market – especially over the last few years – presents a challenge for first-time home buyers. The average price of a home in Canada has risen by approximately 62%, sitting at $796,000 in March, and for many what used to be thought of as a rite of passage is quickly becoming a pipe dream.

But luckily, another trend has kept pace with the continued rise in housing prices: the willingness of The Bank of Mom and Dad – or Grandma and Grandpa – to assist their adult children or grandchildren in achieving the milestone of homeownership. First time homebuyers  are being gifted increasingly large sums of money for their down payments, with a recent report by CIBC deputy chief economist Benjamin Tal finding 30% of Canadians received financial help from their families in 2020. The average gift for first time homebuyers reached a record high of $82,000 in 2020, compared to $52,000 in 2015. The report also noted that first time buyers are not the only ones receiving support: just under 9% of “mover-uppers” also received help, with the size of the gift rising sharply to hit $128,000 in 2021.

While the frenzied market is no friend to those attempting to enter it, it has buoyed existing homeowners’ equity and expanded the opportunity to leverage the reverse mortgage option. And brokers following market trends ­– and those in tune with client needs ­– are paying close attention. HomeEquity Bank’s CHIP Reverse Mortgage allows Canadian homeowners aged 55+ to access up to 55% of their home’s value as tax-free cash with no monthly mortgage payments required and can be leveraged to painlessly gift a down payment. Having a solution for clients that enables them to help family members when they need it most is a differentiator, allowing brokers to serve clients from beginning to end and potentially setting the stage to become a family’s trusted advisor and go-to partner for any future real estate related needs.

Brokers should also know the ins and outs of gifting a down payment when dealing with a client considering this option. While it doesn’t matter if the gifter is a parent or grandparent, most mortgage lenders prefer that the gift come from direct family. There are no limits to how much one can give as a down payment and there’s no gift tax on the amount, but lenders may require proof via bank statements that the funds came from the gifter’s account. The critical point the gifter must legally certify is that the money is provided with no expectation of repayment, which is typically done through a mortgage gift letter that should also include: the name of the recipient and of the gifter; the relationship between the two; the amount of money gifted; and the date of the gift.

With the Bank of Canada suggesting the country might be at the start of a housing market cooling period, The Bank of Mom and Dad could soon be working overtime to extend their support – making it the ideal time to brush up on the products that can help them do just that. For more information on how to help clients leverage the equity in their homes, reach out to a HomeEquity BDM today.

HomeEquity Bank has been dedicated to providing Canadian homeowners 55+ with smart and simple solutions for enjoying the retirement they deserve - in the home they love, for over 35 years. It understands helping your clients is your top priority, and HomeEquity Bank is here to help make that happen with a range of products including CHIP Reverse Mortgage, CHIP Max, CHIP Open and Income Advantage.