A Reverse Mortgage is a loan to seniors that does not require regular repayments. It can be accessed to provide a lump sum or an ongoing income stream.
Everyone has their own individual reasons for seeking financial support. The wonderful thing about a Reverse Mortgage is that it gives you choices, as the finance can be tailored to your needs.
In broad terms, you need to be a home owner with the youngest borrower at least 60 years of age. Facilities can be arranged to draw a lump sum, regular income payments or a combination of both. The lender legally accepts the loan risk based on your age, property value and interest rates to give you security and peace of mind, knowing that you can not be forced to leave your home. The mechanics of a Reverse Mortgage are quite simple, though the features and conditions of each lenders’ products vary.
An existing home loan can be rolled into a Reverse Mortgage provided the loan amount does not exceed the lender’s loan to valuation ratio (LVR) limit.
Apart from being able to use the loan funds for any purpose, the main differences with these types of loans are:
- No requirement to make regular loan repayments
- Interest and costs are added to the loan amount which compounds the amount owed
- The loan is eventually repaid when the last title owner passes away or moves into aged care – or when the property is sold
- Lenders are legally responsible for the risk where the loan may exceed the value of the property. All lenders have a ‘No Negative Equity Guarantee’ built into their products.
- Reverse mortgages come under special regulation and require additional broker qualifications
- Most lenders require you to seek legal advice before proceeding
While a Reverse Mortgage could be great solution, it is important to be aware of the risks, particularly over the long term. ASIC’s MoneySmart website provides a great summary that we recommend reading here.
We also encourage you to download the ‘Reverse Mortgage Information Statement’ here.
If you want to know how a Reverse Mortgage could make a positive difference in your life, please phone or respond via e-mail under the Contact Us page.