What Is A Reverse Mortgage?
The Reverse Mortgage or Equity Release Loan is a relatively new Mortgage product that has been created for retirees who are asset-rich but cash-poor.
A Reverse Mortgage is a potentially lifetime mortgage available from a few Australian lending institutions to residential property owners over sixty living in their own home. It is a loan secured on your home or investment property and provides a source of funds by releasing some of the equity tied up in the property. You are not required to make any repayments whilst you are still living in your own home, as all interest and fees are ‘rolled up’ into the loan balance. You can also stay in your home for as long as you choose.
How much equity you can release depends upon your age and the value of your property. In general, the older you are the more you can borrow. The funds advanced are likely to be between 11% and 45% of the value of your property. You are not required to produce any bank statements or proof of income. Each month interest on the loan will be added to the Reverse Mortgage balance. You will receive regular statements that will show your Reverse Mortgage balance along with the interest and fees added over that period.
How is a Reverse Mortgage repaid?
Unlike traditional home loans, there is no fixed repayment date, nor do you need to make any repayments whilst you are still living in your own home, although you can if you so choose. The loan only becomes repayable when one of the following occurs:
1. You sell your home or investment property; or
2. You have both permanently vacated your own home or moved into long-term aged care; or
3. You have both passed away.
Reverse Mortgage or Equity Release Loan – what is it?
If you’re a Retiree, a Reverse Mortgage or Equity Release Loan lets you unlock the equity in your home. It is effectively a loan against the value of your home that gives you either a lump sum, line-of-credit or in regular instalments.
No monthly repayments with a Reverse Mortgage
Unlike traditional Mortgages, with a Reverse Mortgage you don’t make regular loan repayments. This suits many retirees because they have a reduced income.
No need to sell up with a Reverse Mortgage
Another advantage of Reverse Mortgages or Equity Release Loans is that you can access the equity in your home without having to sell up and downsize. You can turn the equity into cash and continue to live in your home and neighbourhood.
Reverse Mortgages: When do repayments start?
The Lender will only seek repayment on a Reverse Mortgage when you permanently vacate the property. Then the borrower or the estate will repay the Lender in a lump sump or from the proceeds of the property’s sale.
No Negative Equity Guarantee
In seeking a Reverse Mortgage or Equity Release Loan, look for a Lender which has a no negative equity guarantee. This ensures the full repayment won’t exceed the value of the home. It also means you’ll be able to live in the property for as long as you choose.