Reverse Mortgages – Explained.....
A reverse mortgage is a type of home loan / line of credit that allows borrowers who have entered their twilight years to borrow against the value of their home and provide an income of sorts using the available equity in their home as security. To qualify for a reverse mortgage, the applicants need to be retired (over 65) and the maximum amount of loan available will depend on the age of those involved. Applicants may be eligible to borrow up to 40% of the value of their home depending on their age, lender and product offering. The loan can be taken as a lump sum, a regular income stream or a combination of both.
Interest and lender costs apply as per any other home loan, however a major benefit of a reverse mortgage is that the borrower doesn’t have to make repayments whilst living in the home - the interest applicable compounds over time and is added to the loan balance. The borrower remains the owner of their house throughout.
In terms of repayment, the loan is repaid in full (including interest and fees) when the home is sold, the borrowers move into aged care or pass away.
Like any loan, there are always risks involved that need to be taken into account, as summarised below:
- The loan may impact pension eligibility, so checking with Centrelink is paramount Interest rates are generally higher than average home loans
- The debt can rise quickly as the interest compounds over the term of the loan Depending on their circumstances, borrowers need to ensure they are making financial provisions for aged care or other future needs
- If someone else lives with the borrower of a reverse mortgage (not an owner), that person may not be able to stay in the home if the borrower passes away
Keep in mind that whilst no income is required to qualify, lenders are still bound by the laws of responsible lending, so not everyone will be eligible to obtain this type of loan. This is where an experienced mortgage broker with the required accreditation in reverse mortgage loan services can assist, as this area of lending is extremely regulated - and understandably so.
We are fully accredited in providing reverse mortgage services so if you would like further information on arranging this, call me on 0438 041 111 and I will be happy to discuss.