Own a home and need to access cash?
If there is equity in your home, but the rest of your finances are drying up, maybe the answer to your cash flow problems is a reverse mortgage.
A reverse mortgage allows you to borrow money using the equity in your home as security. It can be taken as a lump sum, a line of credit or a regular income stream, depending on your needs.
Interest is charged similarly to any other loan, except you don’t have to make repayments while you stay in your home. The interest compounds and is added to the balance of your home loan. You will still be the legal owner of the home and are allowed to live there for as long as you would like to. However, the loan must be repaid in full when you sell your home, move into aged care or pass away.
The Risks Involved with Reverse Mortgages
There are many risks to be aware of with reverse finance. It has higher interest rates than normal home loans and the debt can rise quickly due to the compounding interest. Other things that you should be aware of include the possibility of your pension being affected and perhaps no longer having enough money left over for aged care or other needs. If you have someone living with you, they might not be able to stay in the house in the event of your death. There can also be charges involved if you try to break your agreement. For this reason we strongly recommend you consult a qualified mortgage broker to find out if this is the right option for you.
Negative Equity Protection
In 2012, the Australian government introduced negative equity protection. This applies to all new reverse mortgage contracts and ensures that a borrower cannot end up owing more than the value of the property to the lender. Because of this law, you can’t be held liable for any debt greater than its value but if your home sells for a greater amount than what is owed to the lender, the money will go to you or your estate.
Reverse Mortgages: The Numbers
Reverse mortgages are available to those who are over the age of 60. Normally, you can borrow between 15-20% of your house’s value, but this amount increases by 1% for every year over 60.
The minimum amount that can be borrowed is usually around $10,000, but this depends on the lending institution. Because the interest compounds and you aren’t making any repayments, the loan amount can grow surprisingly fast over the years. Because of this, it is important to obtain good financial advice before you commit to a reverse mortgage.
Here at Mortgage Hero, we are committed to helping our clients by giving them all of the information necessary to make a good informed decision. If you’re in Perth we can give you a free consultation to help you find out if a reverse loan is the right option in your situation. We also have information on the various finance providers that offer reverse mortgages. We will find you the best deals from a range of lenders and even get you a more competitive rate. We also offer assistance with all of the paperwork and submission.