A reverse mortgage is a type of home loan especially designed for pensioners and retirees who tend to be rich in assets but short on income. Reverse mortgages allow seniors to convert the equity in their property into cash to fund a better retirement. If you are aged over 60 and own your home, a reverse mortgage could release funds to help you live your best life.
Loans can be taken as a lump sum, an income stream, a line of credit or a combination of all three. Typically, you are charged a higher interest rate on a reverse mortgage than for a standard home loan, although interest is charged like any other loan. Usually, you don’t need to make repayments while you live in your home, however the loan must be repaid in full if you sell your home, pass away or move into aged care.
How do reverse mortgages work?
Recognising that your home holds most of your wealth, a reverse mortgage allows you to access this wealth by taking out a loan secured against your home. The total loan amount, including accumulated interest, is repayable when you move permanently from your home.
With a reverse mortgage, you continue to own and live in your home for as long as you wish, benefiting from any increases in property value. With no requirement to make regular repayments, you are free to use your home to build financial freedom in your retirement.
Who can apply for a reverse mortgage?
Anyone aged 60 or over who owns their own home can apply for a reverse mortgage. Like traditional mortgages, applications are subject to loan approval criteria, including location restrictions. The amount of money you can borrow is typically based on your age, property location and the value of your home. Reverse mortgages work best when you manage your financial requirements by accessing only what you need, only when you need it.
What to look for in a reverse mortgage?
Before entering into a reverse mortgage, it’s important to know what safeguards are in place to secure your assets and protect your financial future. Here are a few things you should access and check before signing any reverse mortgage loan agreement.
Ownership of your home – you should retain ownership of your home at all times, allowing you to continue to benefit from any increase in property value.
Equity protection – choose to protect a percentage of the eventual net sale proceeds of the property (10%, 20% or 50%), ensuring you or your estate are guaranteed this amount.
Independent professional advice – always seek advice from a financial adviser and run the agreement by your solicitor before signing off on any reverse mortgage loan agreement.
Family involvement – take the time to run through the agreement with your family and get answers to all your questions before proceeding with a reverse mortgage.
Other occupiers – ensure your partner will be protected should something happen to you, commonly referred to as a lifetime occupancy promise (note this normally doesn’t apply to children or other family members living in your home).
Benefits of reverse mortgages
For many retirees, reverse mortgages transform retirement, giving you the means to make the most of your newfound freedom. Here are just some of the many benefits that come with reverse mortgages.
Free up cash – accessing the equity in your home can help you finance a full retirement, helping you live life to the full.
Stay in your own home – borrowing against the equity in your property, rather than selling up, allows you to continue to stay in your home.
No repayment requirement – you can draw on your equity without having to make repayments, freeing up your income for life, not bills.
Flexibility – use your equity to fund anything you wish, giving you more flexibility to plan holidays, undertake repairs and pursue your hobbies.
If you own your home and are aged 60 or over, a reverse mortgage could be for you. Contact Vision Property & Finance to discover how our safe and secure reverse mortgage packages can help you live your best life in retirement. Give us a call on 02 8354 3000 to reach Sydney’s office or 02 4014 1999 to talk to someone in Newcastle’s office. You can also contact us here.