Reverse Mortgages

A “reverse mortgage” is similar to a normal mortgage but has been designed for people over 60 that have built up equity.

A reverse mortgage is designed to free up cash for a more comfortable lifestyle in the later years. Unlike a normal mortgage that attracts regular repayments to pay off the loan and the interest, with the reverse mortgage, the interest is added to the loan.

The lender gets the money back (plus the interest) when the property is sold or when the last person named on the mortgage document leaves the property.

Who can apply for a reverse mortgage

There are some provisos to getting a reverse mortgage:

  • You have to be over 60 years old
  • You can only borrow a percentage of your home’s value
  • Your home needs to be mortgage-free (or largely mortgage-free).

Protecting lender and borrower

Naturally, the lender wants to be assured that after you leave the property, there is sufficient equity in the property to cover the payments plus the interest. At the same time, you want to be assured that you can leave something to your family or to keep something to pay for future care.

An “equity protection” will guarantee that a pre-set percentage of your equity is protected when it’s time to pay back the loan.

Is there flexibility in a reverse mortgage?

There is some flexibility in how the money is drawn down, which gives you the option of using the funds only as you need them so that you can minimize what you draw.

Discuss with your mortgage broker how to avoid your reverse mortgage from affecting any income that you get from the government and how to structure the mortgage for the best outcomes for you and your family. As with any loan scheme, there are upsides and downsides. Make sure that you fully understand these and also get your own legal advice.

Good information is available at consumer.org and Heartland Bank.