A reverse mortgage is the most popular home equity release in Australia. You might be wondering, what is a reverse mortgage? In this post, you’ll learn everything you need to know about it.
A reverse mortgage is designed for retirees and pensioners who have assets but do not have the cash to spend. It is also referred to as a senior’s loan.
People over the age of 60 can convert their property equity into cash for any purpose. They don’t need proof of income. A reverse mortgage works by securing the first registered mortgage over the borrower’s property. The amount of equity will be based on the age of the borrower and the value of the property.
A reverse mortgage, just like with other loans, has an interest. The difference here is that the borrower doesn’t need to make repayments while they’re living in the house. However, they can pay voluntarily.
What makes a reverse mortgage ideal for seniors is that the interest compounds over time and is added to the loan balance. They will still remain the owner of the house and they can stay in it for a long as they want. The only time that they will need to repay their loan in full is when they sell the house, move to a facility, or die.
Another thing that you must know about a reverse mortgage is that the borrower will not be able to get the money that is over the price of their property value. Additionally, when the contract ends and the property is sold, the lender will get all the money from the sale. In the case that your home sells more than the amount of your loan, the borrower or the estate will get the additional funds.
Although it might seem like a reverse mortgage is a win-win situation for both the borrower and the lender, just like with any other loans, it still brings in its own risks such as:
• Interest rates and fees are higher than home loans
• Affect pension eligibility
• The borrower may have little money for future needs
• If someone lives with the borrower, that person will not be able to stay in the home when the borrower dies
Different lenders provide a reverse mortgage. So, when it comes to the amount of money you can borrow for this type of equity, it will depend on the policies of the lender. Usually, the older you are, the more money you can borrow. It might be tempting to borrow the maximum amount, but you need to keep in mind that when you do, you won’t have any more money to look forward to in the future.
If you’re planning to get a reverse mortgage, you might want to seek the help of a legal adviser first. Let the adviser explain to you everything you need to know especially if you already have a contract. By doing this, you will gain a deeper and clearer understanding of your reserve mortgage, which will ultimately lead you to make an informed decision.