Why get a reverse mortgage?
A reverse mortgage can be a lump sum or drawn down in stages
When people get a reverse mortgage, they usually borrow a lump sum. But some lenders let you borrow in stages or receive a regular payment from the loan facility, up to its agreed maximum. A fee can be added to the loan for certain drawdowns, so be sure to ask about that.
What are the disadvantages of a reverse mortgage?
- Lenders tend to charge a higher interest rate than standard mortgages (up to 2% more) and it is a floating or variable rate, which can increase (or decrease) with market rates
- You pay interest on the interest. These monthly interest charges are added to your loan balance, which has a compounding effect on the amount you owe and the interest charged each time. So at a 7% interest rate, your loan could double in 10 years
- As with most mortgages, there are fees to consider, including an initial home valuation, set-up fee, additional cash advance fees, mortgage discharge fee at the end and any legal fees that your lawyer charges
- You have to live in the home, so you can’t move out and put it up for rent
- If your partner isn’t included as a borrower on the loan document and you die, the house will be required to be sold because the named borrower no longer lives there
- You must pay your council rates on time, your home must be fully insured and you have to keep it properly maintained
How much can you borrow with a reverse mortgage?
What can you use a reverse mortgage for?
- To stay in their home and community while still enjoying a comfortable retirement
- For home improvements or significant essential maintenance
- To remove day-to-day money worries
- To fund travel they’ve always wanted to do
- To pay for an urgent or life-changing medical procedure or in-home help
- To repay some or all of a small existing home loan or other debt, so the regular payments are no longer a concern
- To buy a more suitable, but more expensive, home without having repayments by selling your current home and taking out a reverse mortgage on the new one
Can you get a reverse mortgage on a property that’s not your main residence?
Reverse mortgages can sometimes be used to access the equity you have in other houses you may own, such as a holiday home or investment property. They operate in the same way as a reverse mortgage on your main home.