A reverse mortgage is a type of home loan that allows you to borrow money using the equity in your home as security. The loan can be taken as a lump sum, a regular income stream, a line of credit or a combination of these options.
Interest is charged like any other loan, except you don't have to make repayments while you live in your home - the interest compounds over time and is added to your loan balance. You remain the owner of your house and can stay in it for as long as you want. Hiring a reliable and trusted mortgage broker can help you with a reverse mortgage.
You must repay the loan in full (including interest and fees) when you sell your home or die or, in most cases, if you move into aged care.
While no income is required to qualify, credit providers are required by law to lend you money responsibly, so not everyone will be able to obtain this type of loan.
The Risks
• Interest rates are generally higher than average home loans
• The debt can rise quickly as the interest compounds over the term of the loan - this is the effect of compound interest and is something you need to be aware of before making any decisions
• The loan may affect your pension eligibility
• You may not have enough money left for aged care or other future needs
• If you are the sole owner of the property and someone lives with you, that person may not be able to stay when you die (in some circumstances)
• If you fix your interest rate then the costs to break your agreement can be very high
How much can you borrow?
The older you are, the more you can borrow. Different lenders may have different policies about how much they will let you borrow.
As a general guide, if you are 60 the maximum amount you can borrow is likely to be 15-20% of the value of your home. You can usually add 1% for each year older than 60. That means if you are 70, the maximum amount you could borrow would be about 25-30%.
The minimum amount you can borrow may depend on the provider. It could be as low as $10,000. Keep in mind that if you borrow the maximum amount now, you may not have access to any more money later.
Consult Lendium today to know more about Reverse Mortgages and its benefits!