Reverse mortgages … a saviour or a curse?

Like many things it depends on your circumstances! However, they should be looked at with a great deal of caution and professional advice should be sought at the outset.

A reverse mortgage allows homeowners to access the equity in their homes without selling the property. In Victoria, a reverse mortgage may be an option for retirees who want to supplement their retirement income, pay off debts, fund home renovations, travel or who may wish to buy a more expensive property but do not have the necessary cash.

Unlike a traditional mortgage, where the homeowner makes monthly payments to the lender, with a reverse mortgage, the lender makes payments to the homeowner. The loan is typically repaid when the homeowner sells the property, moves out permanently, or passes away. The amount of the loan depends on the value of the property, the age of the homeowner, and the interest rate. They do not require monthly payments. Homeowners can choose to receive the loan as a lump sum, a line of credit, or as regular payments.

However, there is always a catch and reverse mortgages should be looked at very carefully.  In some cases, it may make better financial sense to take out an ordinary mortgage and use part of it to fund the repayments.

There are many factors to consider including life expectancy and the ability to find a lender who is effectively prepared to lend on the assets not income. The loan will continue to accrue interest until it is repaid, which can reduce the amount of equity that the homeowner has in the property.

You are, therefore, paying interest on interest and interest rates and fees on reverse mortgages are typically higher than traditional mortgages.

It may be a consideration for retirees who are cash-poor but asset-rich. It can also provide a source of income for retirees who do not have other sources of income, such as a pension or retirement savings.

To qualify for a reverse mortgage in Victoria, Australia, homeowners must be at least 60 years old and own their property outright or have a small mortgage balance that can be paid off with the proceeds from the reverse mortgage.

Our firm is more than happy to assist you.

Disclaimer: This is general information and cannot be relied upon as legal advice. Before you contemplate a reverse mortgage, you must consult your professional advisers. •

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