A reverse mortgage is where a homeowner borrows money against their home equity and receives regular cash payments until a pre-arranged limit is reached. This loan can be taken in a number of ways including as one lump sum, regular fixed payments or as a line of credit, but sometimes a combination of these are chosen instead.
Not everyone can qualify for this type of loan though. You need to be a prospective borrower of 62 years or older and own your property.
The reverse mortgage is payable in full (including taxes) once the borrower no longer lives in the property and the lender can either be repaid in a lump sum or takes possession of the property.
People take our reverse mortgages for a number of reasons. One of the main reasons is that it provides extra cash for elderly homeowners in need of another stream of income whilst also allows them to remain in their homes for as long as they want and still continue to own their property. The loan is also generally not subject to taxes.
It is important to note that interest rates on this type of loan is generally higher than average home loans, and as the interest compounds over time, the debt can quickly rise which could potentially affect your aged care in the future as well as your pension eligibility.
Remember that reverse mortgages are not suitable for everyone and it should be considered carefully with your mortgage broker to see if it is a viable option for you.
Use our reverse mortgage calculator today to work out how much you could borrow and how this will affect your increase in debt over time.