CHIP Mortgage Strategies
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CHIP Mortgage Strategies

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Chris Hoeppner presents to the Estate Planning Council of Abbotsford May 21, 2014

Chris Hoeppner presents to the Estate Planning Council of Abbotsford May 21, 2014

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  • Hello. My name is &lt;insert name here&gt; and I would like to thank &lt;insert name here&gt; for arranging today’s meeting. <br /> I’ve designed today’s presentation to take about XX minutes and I am happy to take your questions at any time throughout. <br /> I have product guides and other sales tools that you’re welcome to take with you for future reference. <br /> I’m here to help build upon your understanding of the seniors market in Canada and in particular, how the CHIP Home Income Plan can help you to capitalize on this important and growing opportunity. <br /> I’m going to focus on “client opportunity spotting”. As we go along, I encourage you to think about how those opportunities relate to your own client base, and how CHIP could be a part of their financial future. <br /> At the end of the presentation, I’ll make myself available for individual meetings so we can talk about specific clients and how we can work together to meet their needs. <br /> Let’s begin and see how to tap into Canada’s fastest growing segment of the population by helping your clients unlock the value of their biggest asset. <br />
  • For Canadian seniors, typically, what they need to fund their retirement is more income. <br /> They need to make some tough financial choices to maintain their standard of living. <br /> That presents you with the opportunity to advise them on how to use their assets to generate the cash flow they need. <br />
  • We, as an organization, have been talking about the future impact of the Baby Boom demographic wave for 25 years. <br /> Well…now it’s here. <br /> The first baby boomers are now over 60 years old <br /> By 2016, the number of seniors will grow by nearly 20% (from 6.7 million seniors in 2010 to 8.0 million in 2016 as represented in the graph above), accounting for 23% of the total population – thereby representing Canada’s fastest growing population segment. <br /> In fact, according to Statistics Canada, at some point between 2015 and 2021, the senior population is expected to outnumber that of children under the age of 15. <br /> This is a tremendous opportunity to focus on meeting the very real needs of Canadian seniors. <br />
  • So, what are those needs? …What are the challenges they face? <br /> Seniors are likely to live longer than ever before. A couple around 65-years old has a 1-in-2 chance that one of them will reach 92 years of age. <br /> Seniors are savings less than the generation before them. <br /> Seniors are spending more. In fact, spending themselves into debt – with little planning to service their debts in retirement. <br /> Seniors are subjected to market conditions without time or income stream to off-set any negative fluctuations. <br /> With less than $125,000 in their RRSP account at retirement, they do not have enough funds saved, often coupled with the pressing issue that they are carrying debt into retirement. <br />
  • They old adage “a picture is worth a thousand words” certainly applies to this slide. The is a perception in the marketplace that a reverse mortgage can result in substantial equity erosion to the point where one might believe that the lines on this graph would cross. But, clearly that’s not the case. <br /> • In fact, the graph illustrates how clients maintain a large portion of their home equity at the time of repayment. <br /> • This is due to our conservative lending practices combined with typical home appreciation, as well as a low interest rate environment. <br /> The graph is based on the following assumptions: <br /> The home appreciates at a rate of &lt;insert CREA %&gt; annually – which is the 15-year national house appreciation average according to CREA (Canadian Real Estate Board) at of &lt;insert month&gt; <br /> And we’re using &lt;insert CHIP variable rate&gt; for CHIP – reflective of our current variable interest rate. <br /> • As you can see, if the client converts a third of their home equity into investments, after 15 years, the client’s home equity will grow from $200K to over $500K and still account for approximately three quarters of the value of the home, an increase from two-thirds. <br /> • We’ve used a 15-year timeline because our average client stays with us for about 12 years. <br /> • And assuming that they had invested the $100,000 they received from CHIP, they would still have those investments and have received investment income over those years. <br />
  • In terms of lifestyle, we frequently see clients who wish to: <br /> • Make changes and improvements to their home for improved mobility and smooth “aging in pace “ or through renovations to improve property value. <br /> • Pursue a hobby or start a business <br /> • Help their children and grandchildren with tuition or a home down payment <br /> • Extend their time in their home by getting needed help <br /> • Or visit places they never could before. <br /> The CHIP Home Income Plan provides clients with a solution to meet all these needs. <br />
  • As I previously mentioned, the average Canadian between 55 and 65 has less than $125,000 in their RRSP. <br /> That’s $125,000 for their whole retirement! 20 to 30 years of it. <br /> CHIP offers your clients an opportunity to make their existing registered or non-registered investments last longer and generate more income. <br /> CHIP is an excellent source of funds to cover emergency expenses and unexpected, urgent needs. <br /> Your clients can use some of the CHIP funds to take care of their immediate needs and put the rest of the money to work generating more income on an ongoing basis. <br /> With CHIP, they are converting their most important asset that is illiquid into cashflow and putting it to work for them. <br />
  • Now, I’d like to explain our simple and easy set-up process: <br /> It starts with an independent home appraisal. The cost is an out-of-pocket cost for the client, typically ranging from &lt;$175 to $400 - you should insert typical cost for your territory&gt;depending on where they live. <br /> Independent legal advice is required to protect the client, the advisor and CHIP. Out-of-pocket cost ranges from $300 to $600 assuming that there are no title issues. <br /> Legal & closing costs – Please review table <br />
  • As I previously mentioned, the average Canadian between 55 and 65 has less than $125,000 in their RRSP. <br /> That’s $125,000 for their whole retirement! 20 to 30 years of it. <br /> CHIP offers your clients an opportunity to make their existing registered or non-registered investments last longer and generate more income. <br /> CHIP is an excellent source of funds to cover emergency expenses and unexpected, urgent needs. <br /> Your clients can use some of the CHIP funds to take care of their immediate needs and put the rest of the money to work generating more income on an ongoing basis. <br /> With CHIP, they are converting their most important asset that is illiquid into cashflow and putting it to work for them. <br />
  • As you will recall, 84% of seniors want to stay in their homes and those homes represent 77% of their net worth. There is enormous potential in the seniors’ market and I am here to partner with you and help you turn that potential into business. <br /> Are there any additional questions? <br /> Thank you for this opportunity. I’ll remain here and I’d be very happy to talk to you individually about any clients who could benefit from a CHIP Home Income Plan. <br />

CHIP Mortgage Strategies CHIP Mortgage Strategies Presentation Transcript

  • Tapping into Canada’s Fastest Growing Segment Chris Hoeppner BDM, BC Fraser Valley CELL: 778-229-8555 E-MAIL: choeppner@chip.ca
  •  Baby boomers are now in their mid 60’s  Cost of living is high, pensions are low, life expectancy is long, and many don’t have enough invested.  The average person 55-65 has approximately $125,000 in RRSP’s  There are 1000 people turning 65 every day in Canada.  According to a 2013 Harris/Decima Poll, 59% of retirees in BC are carrying debt, and 54% of them carrying more than 1 form of debt. The Need For CHIP Canada’s Fastest Growing Challenge
  • Company Overview  The Canadian Home Income Plan (CHIP) is provided by HomEquity Bank.  In business since 1986  Received schedule 1 bank status in October 2009  Partner with most major banks, credit unions, and mortgage brokers in Canada  Canada’s only provider of a reverse mortgage Who is CHIP an option for? Homeowners 55 or older who…… Have a house, townhouse, or condo with at least 50% equity Want to increase cash flow
  • CHIP Program Information NO PAYMENTS REQUIRED!  No credit check, no income qualification, and no medical requirement.  Protects cash flow even when rates are rising.  The money can be taken all at once, lump sums as needed, or even as an automatic monthly deposit.  Access UP TO 50% LTV depending on property type and age. The older the client, the more they qualify for.  CHIP guarantees that your balance owing will never exceed the fair market value of the home at the time it is sold
  • Home Equity Preservation with the use of $100K over 15 years 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 Initial Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 CHIP Home Income Plan Solution $200,000 67% $520, 982 71% Home Equity CHIP Home Income Plan Home Equity Appreciation: 6.10% (15-year national average at as February 2012. Source: CREA) CHIP Home Income Plan: 4.95% initial interest rate. Let’s do the math even with just 3% property appreciation: • Value $300,000 x 3% = $9000 appreciation • CHIP of $100,000 x 4.95% interest rate = $4950 in interest
  • CHIP Home Income Plan Unlock the value of their biggest asset Common Reasons For A CHIP:  Increase monthly cash flow in retirement  Purchase a new primary residence. Downsize or upgrade  Replace income from deceased spouse  Keep up with rising costs as you age  Poor credit or low qualifying income  Assist children with down payment needs  Renovations or increased travel  Purchase a vacation property
  • Examples  #1. Mr & Mrs Smith are 75 and 79 years old  Mr still works nearly full time to make the payment on their $420,000 mortgage.  House is worth $980,000 and they just can’t imagine having to move all their things at this age, plus Mrs had a stroke recently and they want to stay put.  Broker suggested they consider CHIP to lower payments and possibly allow Mr to finally retire at 79 and spend time with his wife.  Funded a new CHIP for $430,000 to pay off the existing mortgage, leaving the Smiths with no monthly payments other than utilities, and allowing Mr to finally stop working.
  • Examples cont’d….  #2. Mrs Jones is 67 years old and lives by herself on an ALR property  Home is worth $375,000 and she qualifies for $137,000 from CHIP  Has lung cancer, can’t work, and lives on her government pensions. As a result, she fell 3 years behind on property taxes and has been notified the city is putting her house up for auction in a tax sale if she doesn’t pay  Has a 1st with TD for $60k, $50k in assorted other debts, and owes the back taxes  Client was turned down everywhere until someone finally suggested CHIP. We funded 1 day before she lost her house, paid off all her debts, put $20k extra in her bank account, and she can now live in her home as long as she wants with no payments other than utilities.  As a plus, now that her property taxes are current, she can now apply to defer them going forward.
  • Examples cont’d….  #3. 75 year old couple with a home in Ladner worth $700,000.  Tired of yard work and house maintenance, so want to move to a downtown Vancouver condo worth $1 million.  With limited income, they don’t qualify for an upgrade mortgage of $300,000, nor could they live a comfortable retirement with a payment that large.  Solution was to sell the Ladner home, put $600,000 down on the condo, and take a CHIP for $400,000 to complete the purchase.  The end result was they had about $50k in cash left in the bank, Zero payment on the CHIP, and they still have $600k equity in the condo. As long as it appreciates at roughly 2%/yr, they’ll maintain that equity. Instant upgrade with no change to cash flow.
  • Reverse Mortgages – Canada vs USA Canada USA Set up fees consist of legal and appraisal Set up fees consist of legal and appraisal + fee up to $6000 + Insurance Premium of .5%-2.5% + annual insurance premium of 1.5% + monthly service fee. Automatic renewal at end of term. Clients typically need to requalify at the end of the term, and may not be renewed. CHIP guarantees the client will never owe more than the fair market value of the home at the time it is sold Seniors have been sued for any shortfall when selling for less than what’s owed. As a schedule 1 bank, rates run around posted, and there are no fees after set up. Plus, the max loan is 50% of the value. Rates are higher, fees are higher and ongoing, and loan amounts are more aggressive.
  • CHIP Home Income Plan Solution Set-up Process • Appraisal fee: $240 - $400 • Independent legal advice: $300 - $600 • Legal & closing costs: Term Closing Fees Variable $1,495 6 Month $1,495 1 Year $1,495 3 Year $995 5 Year $595 Additional Funds Add $500 to the above closing fee for the term you choose
  • Conclusion  For clients with good credit, and good cash flow, a secure line of credit is typically the better solution  For clients where cash flow is the real issue, yet there is equity in the home, a reverse mortgage might be more appropriate  While CHIP isn’t for everyone, there are more and more retirees in Canada finding themselves asset rich but cash poor, and knowing about this solution could end up being a life changer for them.
  • Unlock the value of their biggest asset www.chipadvisor.ca Chris Hoeppner BDM - BC Fraser Valley Cell: 778-229-8555 Email: choeppner@chip.ca