A reverse mortgage allows you to borrow funds for any purpose or for day-to-day living expenses, secured against the equity in their property.
The main difference to this product to standard home loans is that the lender does not require the borrower to make any principal or interest repayments during the loan term. The debt instead capitalizes. The debt is traditionally repaid once the property securing the loan is sold.
Due to the nature of the facility, with interest capitalized until the full payment of the debt, lenders restrict the amount that they will advance against the value of the property. The amount you will be able to borrow will be dependent on the age of the borrower.
The borrower has the option of repaying the facility through normal means, however it’s not a requirement of a loan, allowing the consumer to maintain their current standard of living.
An additional requirement of these facilities is that you will be required to obtain independent legal and financial advice, as the nature of the facility diminishes the borrower’s equity in the property.
Reverse Mortgages can be used for paying off debt, home improvements, day to day expenses, travel, buying a car, aged care expenses etc.
Reverse mortgages are more complex products compared to ordinary mortgages and lenders apply higher interest rates – generally more than 2% above standard mortgage variable rates.
In 2018, many lenders removed their Reverse Mortgage products from the market, but we can still refer you to a Reverse Mortgage Provider.