Everything you need to know about a Reverse Mortgage
A reverse mortgage is a loan available to homeowners which allows them to convert the equity in their property into cash payments, provided they have considerable home equity.
A reverse mortgage may enable those over the age of 60 to receive funds as a lump sum or fixed monthly payment.
Compare reverse mortgage home loans
InfoChoice compares several Reverse Mortgage rates. The cheapest is Household Capital which is offering a rate of 5.15 per cent (comparison rate 5.21 per cent).
In a regular mortgage, the home owner is required to make loan payments, however with a reverse mortgage the loan balance becomes payable when the borrower dies, moves to aged care home or sells their home.
What is home equity?
Home equity is the difference in value between your property’s market value and what you owe your lender. The longer you have owned your home, the more chance that you have a considerable amount of equity available.
Negative equity protection
Negative equity is when the amount you owe on your property is more than the amount you own. This is not a situation anyone wants to find themselves in.
Any reverse mortgages taken from 18 September 2012 have negative equity protection which means you cannot end up owing the lender more than your house is worth at the end time of your loan.
When your house is sold, the lender will receive the proceeds of the sale and you will not be held liable for any excess debt. Your estate will receive any extra funds should your property sell for more than the contract amount .
Here are some benefits and disadvantages to a reverse mortgage
Continue to live in your home
This is by far the biggest benefit of a reverse mortgage. You can continue to live in the comfort of your own home without having all the stresses of relocating and retain home ownership as long as you are there.
Have money available for emergencies
There will always be emergencies, but having the funds to be able to draw on them in case of things such as medical emergencies is extremely important.
Secure a monthly income
When it comes time to retire, many seniors have a significant reduction in their income. Having a reverse mortgage eliminates the stress of not bringing in as much income as you may be previously used to.
Your equity will decrease
As your debt grows your equity will start to diminish. This means by the time you have reached the end of this contract, you may end up with less funds left over for you and your family.
The interest rate on a loan such as this is usually higher than on a standard home loan. As interest on the loan and fees accumulate it can add a significant amount to your loan balance once you reach the end of your contract.
The amount you receive from your reverse mortgage may not be enough to cover all your costs such as home and contents insurance and home maintenance costs. If you let these areas lapse, it may result in losing your home.
Before deciding if a mortgage reversal is right for you, find out if it will affect your pension entitlements.
And always get legal advice on any product you are considering.
A reverse mortgage can be useful to relieve financial pressure. It can also help you retain your standard of living and lifestyle.
Make the right choices for you and always be aware of the terms and conditions that come with your loan.
This update is not financial advice. This article is general news and information.
Home Loans: The comparison rates are based on a secured loan amount of $150,000 and a term of 25 years.
Personal Loans: The comparison rates in this table are based on a loan of $30,000 and a term of 5 years unless otherwise indicated in the product name with^, in which case, the comparison rate is based on a loan of $10,000 and a term of 3 years. The comparison rates are for unsecured personal loans only for the relevant amounts and terms. The comparison rates for car loans and secured personal loans are for secured loans unless indicated otherwise.
WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. Comparison rates are not calculated for revolving credit products.
The products compared in this article are chosen from a range of offers available to us and are not representative of all the products available in the market and influenced by a range of factors including interest rates, product costs and commercial and sponsorship arrangements
InfoChoice compares financial products from 145 banks, credit unions and other financial institutions in Australia. InfoChoice does not compare every product in the market. Some institutions may have a commercial partnership with InfoChoice. Rates are provided by partners and taken from financial institutions websites. We believe all information to be accurate on the date published. InfoChoice strives to update and keep information as accurate as possible.
The information contained on this web site is general in nature and does not take into account your personal situation. Do not interpret the listing order as an endorsement or recommendation from us. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.