What is a reverse mortgage?

A way for retirees to unlock the equity in their homes.

The reverse mortgage or equity release loan is a relatively new mortgage product that has been created for retirees who are asset-rich but cash-poor.

Reverse mortgage or equity release loan – what is it?

If you’re a retiree, a reverse mortgage or equity release loan lets you unlock the equity in your home. It is effectively a loan against the value of your home that gives you either a lump sum, line-of-credit or regular payment instalments.

No monthly repayments with a reverse mortgage

Unlike traditional mortgages, with a reverse mortgage you don’t make regular loan repayments. This suits many retirees because they have a reduced income.

No need to sell up with a reverse mortgage

Another advantage of reverse mortgages or equity release loans is that you can access the equity in your home without having to sell up and downsize. You can turn the equity into cash and continue to live in your home and neighbourhood.

Reverse mortgages: When do repayments start?

The lender will only seek repayment on a reverse mortgage when you permanently vacate the property. Then the borrower or the estate will repay the lender in a lump sump or from the proceeds of the property’s sale.

No negative equity guarantee

In seeking a reverse mortgage or equity release loan, look for a lender which has a no negative equity guarantee. This ensures the full repayment won’t exceed the value of the home. It also means you’ll be able to live in the property for as long as you choose.

Seek specialist advice

Equity release loans or reverse mortgages are specialist products and should be carefully considered. 

Source: MFAA

Reproduced with the permission of the Mortgage and Finance Association of Australia (MFAA)

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