Is a Reverse Mortgage Home Loan Right For You?

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Posted date: November 30, 2010 | Tags: | No comment

If you are over the age of 65 and in need of cash for one reason or another, and you have equity in your home, you may be eligible for an Australian home loan called a reverse mortgage. A reverse mortgage is a loan that allows you, the homeowner, to borrow equity against the value in your home. Unlike a traditional mortgage you won’t need to make any payments on the home loan. The loan will be due only when you decide to sell or leave the home for one reason or the other.

How much equity can you take out on your home?

That depends on the home’s current value and the lender of choice. Requirements do vary from lender to lender. Here’s a look at what the requirements You’ll have to satisfy to secure a reverse mortgage home loan.

  • You have to be at a minimum age 60, but most lenders will not offer a reverse mortgage until you are 65 or older.
  • You must use the home as your primary residence. You cannot rent out the home or live someplace different and still keep the reverse mortgage.
  • When you move out of your home, no matter what the reason, the entire loan and accumulated interest becomes due.
  • You remain responsible for the entire upkeep of the home and must continue to make repairs and deal with other maintenance issues.

The two sides to a reverse mortgage

If you can meet the above requirements, the next thing to consider before taking out a reverse mortgage is the pros and cons.

The pros

  • A reverse mortgage allows elderly that are income poor to be able to release money that is linked to their property value.
  • Many times a reverse mortgage is a means to save your home. For some people the option of a reverse mortgage saves them from having to sell their home.
  • The holder of the reverse mortgage does not have to make any payments on the loan, except for a possible annual fee, depending on the lender.
  • The money received from a reverse mortgage can be used for any purpose, there are no requirements. Seniors can use the money to pay for living expenses, medical bills or to go on a vacation. It is totally up to them.
  • Most times you can choose how you want to receive the money. Options are in one lump sum or as an income stream. Sometimes a combination of both is also available.

The cons

  • Interest rates on reverse mortgage are typically up to 1% higher than a traditional home loan.
  • Interest rates are usually variable, and in times of rising interest rates, the amount of money owed on a reverse mortgage can balloon to high levels. Some people who take out reverse mortgages could owe more than they ever thought possible
  • Family members might be upset with you, after your death if they are left with a big loan to pay off.

What to do next?

Before taking out a reverse home loan mortgage, you will want to weigh the pros and cons and take the time to work with a financial planner or accountant. They can help assess what your financial needs are and if a reverse mortgage is really right for you. You should also consult with your family members to see how they feel about the reverse mortgage idea. If you do decide to go ahead with it, make sure you shop around to different lenders to find the best interest rates and best deal overall