A reverse mortgage is a type of loan that allows homeowners, usually seniors aged 60 and above, to borrow against the equity in their home. Unlike traditional mortgages where borrowers make monthly payments to the lender, with a reverse mortgage, the lender makes payments to the borrower, either in a lump sum, regular payments, or a line of credit. Typically, the borrower is not required to make any repayments under the reverse mortgage to the lender, unless an event of default occurs.
The amount that can be borrowed through a reverse mortgage depends on factors such as the borrower’s age, the value of the property, and the lender’s criteria. Generally, the older the borrower and the higher the value of the property, the more equity can be accessed.
What to look out for?
While reverse mortgages offer a way for retirees to access funds without selling their home, there are several important considerations to keep in mind:
- Interest Accumulation: Unlike traditional mortgages, where borrowers make payments to reduce the loan balance, with a reverse mortgage, the loan balance increases over time as interest accrues. This means that the equity in the property decreases over time, potentially impacting inheritance for heirs.
- Fees and Charges: Reverse mortgages often come with fees and charges, including application fees, ongoing fees, and interest charges. These can vary between lenders, so it’s essential to understand the full cost involved.
- Impact on Government Benefits: Borrowers should be aware that accessing equity through a reverse mortgage could impact eligibility for government benefits such as the Age Pension or aged care subsidies.
- Property Value Fluctuations: The amount that can be borrowed through a reverse mortgage is based on the value of the property. If property values decline, it could limit the amount of equity that can be accessed.
- Legal advice: It’s advisable for potential borrowers to seek independent legal advice before committing to a reverse mortgage. This can help ensure they fully understand the risks, implications and explore other options that may be available.
We specialise in reverse mortgages in Australia and have a team of reverse mortgage lawyers. We are located in two convenient locations on the Gold Coast and Springwood. Call us today for a free 20 minute strategy call or meeting on (07) 3186 8669 and a fixed fee quote.
