The reverse mortgage loan was introduced to the market to cater for retirees wanting to take advantage of the equity they have in their home and use it to supplement their retirement income. Basically, retirees can use this type of loan to borrow money against the equity they have in their property, and have it paid to them in either a lump sum or in instalments, depending on the lending institution involved.
Generally all repayments, fees and charges will be added to the loan balance each month so that the borrower/s don’t have to make any payments whatsoever. The lender recoups the repayments and fees when the borrower/s pass away, the property is sold or the borrower/s no longer live in the property. Having said this, generally the borrower/s may make payments at any stage if they wish to reduce the loan balance.
There will normally be a minimum amount of around $10,000 and quite often a maximum allowed that will be expressed as a dollar figure, or as a percentage of the value of the property. To qualify, the borrowers will generally need to be over 65 years of age. Some lenders will wear the risk if the end debt amount is more than the property is worth, however this will vary from lender to lender.
These loans are obviously great for older people who may be doing it a little tough financially after retirement, or who may need a large amount of money in a relatively short time for a dream project such as a caravan trip to the Outback or a luxury cruise.
One thing to be wary of is the ‘all care, no responsibility’ method of repayment. Basically, the debt is left to the beneficiaries of the borrower/s to pay, which might come as a nasty surprise to beneficiaries expecting a ‘clean’ inheritance.
Whether you are looking to buy your first home, move home, refinance, or invest in property, a mortgage broker can help. Access loans from all the major lenders, get help with paperwork – plus there is no charge for this service.
Reverse Calculator CLICK HERE
Key ASIC Fact Sheet CLICK HERE