Understanding Reverse Mortgages
A reverse mortgage could be the ideal loan option if you’re asset-rich, cash-flow strapped and of eligible age
If you are 60 years or older and looking to access finance, a reverse mortgage is an effective option for your needs. Reverse mortgages allow asset-rich but cash-flow poor seniors to live a more comfortable retirement, without having to worry about repayments.
What is a reverse mortgage?
A reverse mortgage is a loan that is structured to allow you to use the equity in your home, giving you the opportunity to access additional funds without having to limit your lifestyle. Indeed, a reverse mortgage allows seniors access to additional funds to enhance their lifestyle, gain access to better healthcare and rely less on financial assistance from their family.
Reverse mortgages are becoming increasingly popular, as noted in a recent review on the subject by ASIC, which found several key issues regarding reverse mortgages;
1. There are considerable benefits to seniors in taking out a reverse mortgages;
2. Potential borrowers need to be made more aware of these benefits, as well as the risks, of taking out this type of loan, and
3. Brokers such as LogiX Financial Services are ideally positioned to educate the public on reverse mortgages.
Why should I consider a reverse mortgage?
• A reverse mortgage is a simple, yet flexible loan that can be tailored according to your age and needs.
• You are still the owner of your home and will remain as such, thus benefitting from any increases in property prices. You can continue to live in your home for as long as you choose, maintaining your dignity and independence in later life.
• Reverse mortgages are heavily regulated, and legislation provides the borrower with extensive protection. In addition to this, independent legal advice around the loan contract is mandatory.
• There is no requirement for repayment until you either sell your property or pass away. However, you may make incremental (or lump sum) repayments if you choose to. As with all loans, interest is charged and added to the loan balance.
• Depending on the type of reverse mortgage you choose, you can receive the money either as a regular income, or as a lump sum payment, or a combination of both.
What risks should I be aware of?
• Interest rates are generally higher than standard home loan rates, so the debt can rise quickly as interest compounds.
• The loan is to be repaid when the home is sold, when the last borrower moves out of the home or upon the death of the last borrower. The beneficiaries will have six months to repay or refinance the loan.
Reverse mortgage clients are not at risk of losing their homes. “Reverse mortgages have extremely strong consumer protections. For example, a borrower can never be in a position where they owe the lender more than the value of their property. They can also stay in their home until they move out or pass away,” explains Murray Katz, Director at LogiX Financial Services.
Before taking out a reverse mortgage, consider your needs now and in the future. Talk to your family to discuss your options and how a reverse mortgage may be of benefit to you. LogiX Financial Services has strong relationships with all financial institutions offering reverse mortgages. We are well-placed to offer you sound advice and a clear idea of how a reverse mortgage may enhance your lifestyle.