A reverse mortgage is a type of home loan facility that allows you to borrow funds 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 home loan, except you don’t have to make repayments while you live in your home – the interest compounds onto the home loan balance over time. You remain the owner of your house and can stay in it for as long as you want.
If you want to sell your home or move out, you must repay the loan in full – such in the case if you moved into aged care. It will also be required if the borrower passes away while the loan is active.
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.
What are some of the key points about reverse mortgages?
Many seniors will utilise reverse mortgages to supplement their income, combine existing debts, fund purchases such as a vehicle, finance home upgrades, holidays or even help support their aged care.
Many of our senior clients use reverse mortgage to receive additional income, consolidate debt, buy a new car, fund aged care, finance home improvements, pay for holidays and more.
While you can use the loan proceeds on anything you want, you must consider longevity risk and should consult with a finance expert to choose the right decisions for your long-term best interests.
Repayment is not required until you sell your home, or all borrowers permanently move out of your home, or all borrowers pass away – this is designed through government regulations to stop retirees from being put at risk of not having a home.
According to regulatory body which monitors reverse mortgages, the average loan size for a reverse mortgage at this time is $85,000.
How much can you borrow with a reverse mortgage?
Each lender who offers reverse mortgages have different policies, but as a general trend the older the age of the applicants, the larger amount of potential borrowings are permitted.
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 property. This will increase each increase in the age of the borrowers. For example if you are 75, the maximum amount you could borrow may increase to 25-30%.
The minimum amount you can borrow is also determined by each lenders unique policies; some can be as low as $10,000. Keep in mind that if you borrow the maximum amount now, you may not have access to any funds later.
Who can help me find out my reverse mortgage options?
Reverse mortgages are a type of specialist finance – with most lenders and financiers unable to provide products or advice to seniors. As a mortgage broker in Perth, I suggest it’s best to use a reverse mortgage lender with experienced staff who can understand your exact borrowing needs. Important questions to ask any broker in this space is their experience, panel of lenders available, what costs they may charge, how much you can borrow and whether there’s any specific criteria that you need to meet to achieve your goals.