Reverse Mortgages

Reverse mortgages allow homeowners to use the equity they have built up in their homes. The concept was originally created in the USA to allow "house-rich, cash-poor" elderly or retired homeowners access to their home equity to support things like living expenses or emergency bills without having to sell their homes.

Reverse mortgages are generally available to residential property owners aged over 60. Different lenders have different age entry levels, and the percentage of equity or amount of money you can leverage depends upon your age. These mortgages allow you to release funds by using the equity in your property, and are secured by a registered first mortgage on your principal place of residence and potentially, your residential investment property, dependent upon the lender.

How do Reverse Mortgages work?

In simple terms, a reverse mortgage works like this: you own a property, valued at $400,000. You take out a reverse mortgage and borrow $100,000. Depending on the product, you can take the $100,000 as a lump sum, regular income or a combination of both. Either way, you accumulate interest on borrowings as they are drawn. You generally can't rent the property, and you remain responsible for maintenance and similar costs. If you sell, you simply discharge the mortgage in the usual way or, when you die, the lender or estate sells your home, and takes what they're owed: principal (less any repayments) plus capitalised interest.

Repayments

As noted, generally, no repayments are required on a reverse mortgage until the borrower sells the home, dies or permanently moves out, with interest payments in most cases being added to the balance. You can usually choose to make regular repayments or lump-sum repayments if you wish.

What Can You Use Funds for?

Generally the funds can be used for any worthwhile purpose and typically people are using them to fund:

• Holidays
• Purchasing motor home and travelling
• Home improvements
• Investment Opportunities
• New car
• New boat
• Emergency funding
• Support for Medical funding
• Accommodation Bonds

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