A REVERSE MORTGAGE: HOW DOES IT WORK?
One approach to access the equity in your house might be something called a “reverse mortgage,” which you may have heard of. However, there are many factors to take into account, and it's crucial to be aware of all of your potential possibilities.
If you are a homeowner who is 60 years of age or older, one way you might be able to obtain additional funds is through a refinance reverse mortgage company. There are alternative ways to access the equity in your house that might be more appropriate for your case. For example, Westpac does not offer this option.
Below, we've outlined the essential information you need to know.
Backward mortgages
With a reverse mortgage, you can borrow money from a lender and use the value of your house as collateral.
Accessing the cash can be done in a number different ways, including as a lump sum, line of credit, regular income stream, or a mix of all three.
What a reverse mortgage has to offer
One of the main benefits of a reverse mortgage is that you can continue to live in your house without having to make payments to your lender as long as you do so. However, the reverse mortgage loan must be fully returned to the lender whenever you or your estate sells the home.
The loan's interest rate will accumulate over time. Although you won't be required to pay back the loan while you live in the home, interest is still accruing throughout this time. You or your estate will be responsible for paying back both the principal loan amount and the interest when it comes time to sell the property.
As you get older, reverse mortgages let you borrow more money. The fraction of the value of your property that you are able to borrow grows yearly. If you're 60 years old, for instance, you might only be able to borrow 15% to 20% of the value of your property. Following that, for every year above 60, this can be raised by 1%.
In light of this, younger homeowners usually aren't eligible for a reverse mortgage.
You can use ASIC's Moneysmart reverse mortgage calculator to get a better sense of your borrowing capacity and how a loan would affect your equity over time.
Taking a reverse mortgage into account
Consider the potential impact of reverse mortgages on your financial status.
Even though you won't have to make payments while you're still living in your house, once the asset used to secure the loan is sold, the whole reverse mortgage loan balance—including interest and any other ongoing costs—must be paid back.
Reverse mortgages draw on a significant source of wealth (your property), so it's necessary to carefully analyze the benefits and drawbacks while taking into account your present and future circumstances.
It might also have an impact on your eligibility for the Age Pension if you're in later stages of life. Speaking with a knowledgeable financial or tax counsel might also be beneficial to fully grasp the implications for your particular situation.
Considering that your home is frequently your major asset that will be bequeathed to others, it is also important to consider everyone who lives with you and what their status will be in the event of your passing.
