Reverse

Reverse mortgages can be confusing. In this short article I’m going to cover the basics and then, if you believe that this may be a good option for you, strongly suggest that you give me a call and we can walk through the full details. While a reverse mortgage may be perfect for some seniors, it certainly is not for everyone.

What is a reverse mortgage? A reverse mortgage converts the equity in your home into cash. Those who obtain a reverse mortgage may receive either a single lump sum payment or monthly payments that may be used for almost any personal (non-business) purpose. The funds are not due for repayment until either you pass away or move out of the home.

Who is eligible? You must be at least 60 years of age and own your home.

How much can you receive? A reverse mortgage may be written for from 15% to 40% of your home’s value, depending on your age, and there are caps on the total amount that may be borrowed as well.

What are some of the advantages? A reverse mortgage can significantly improve the quality of life for many people over 60. It can mean having the funds available to do things you had always envisioned in retirement, from travel to pursuing a hobby, or the funds may be used to pay for unexpected expenses. For many borrowers, the biggest advantage is that you need not move out of your home, yet can improve your overall quality of life.

What are some of the disadvantages? You will be paying interest on your loan, and interest on the interest over time. Because of this compounding effect, the amount due for repayment can be considerable and you can lose all of the equity in your home, endangering any property inheritance. Note that the federal government has put in place negative equity protection that ensures that you can never owe more than the value of your home on the basis of a reverse mortgage.

The Australian Securities and Investment Commission has a reverse mortgage calculator that you may find useful. If you live in the Melbourne area, I am available at your convenience as a resource whether just to answer a question or to assist you in deciding whether or convention loan or reverse mortgage or some other option is best for your situation.

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