Have you ever heard of a ‘reverse mortgage’?

A reverse mortgage is a home loan that provides cash payments based on home equity. The idea is that homeowners normally defer payment of the loan until they die, sell or move out of home.

In a normal mortgage the homeowner makes a monthly payment to the bank and their equity increases by that amount. In a reverse mortgage however, the homeowner is not required to make monthly repayments. If payments are not made interest gets added to the loan amount.

The reverse mortgage can be in the form of a lump sum payment, a regular income stream, a line of credit or a combination of these.

In most cases, the loan is paid back when the borrower moves into aged care.

While the idea of taking out a mortgage and not having to pay back monthly payments until you retire or are heaven forbid, dead, might sound like a winner, there are some downfalls.

Firstly, reverse mortgages generally attract higher rates of interest. Secondly, the interest is compounded, as thus can accumulate very quickly.

A reverse mortgage can also affect pension eligibility for seniors. If you do happen to die and someone else is living in the property, they may be forced to leave when the bank wants to sell and recoup their loan. 

Finally, if you decide to fix the interest rate on your reverse mortgage, if you wanted to break the contract it can be very expensive to do so. 

Talk to Perry Finance today to discuss whether a reverse mortgage is right for you.


News & Resources