Of the many different kinds of home loans and investment loans available in Perth, a reverse mortgage sounds like a great deal–it is great in theory. When you are older, you can use the equity in your house to live on, and then your estate can sell the house when you die, and your heirs can have what’s left.
After all, you can’t take it with you and it is your money, so a reverse mortgage sounds like a great way to increase your quality of life for your last years. So, what’s the catch? Is there any reason for not buying a reverse mortgage?
Reverse mortgages are like any other form of investment or loans–they are right for some but not appropriate for others. We always recommend that you talk to a professional financial planner from our Perth office before any loans or investments, but here are a few pros and cons about reverse mortgages.
How it Works
As we mentioned, you are borrowing the money against the equity in your home. Options available include a monthly stream, a line of credit or a lump sum. Even though you don’t need to have any income to qualify for a reverse mortgage, some lenders will turn down borrowers in certain situations.
The loan accrues interest, the same as other loans, but with one major difference: you don’t have to pay anything on the loan as long as you live in your house. Consequently, the interest is added to your loan balance and compounded like any other loan. You get to stay in your house as long as you want and are still the owner.
When you move out of the home, you have to pay off the loan, including that compounded interest and any fees involved.
Why Shouldn’t Everybody Get a Reverse Mortgage as they Age?
The main risk is that you outlive your loan; another is that it can affect your eligibility for your pension. Some borrowers end up not having enough funds for aged care.
That being said, a reverse mortgage is “just what the doctor ordered” for many Australians. A financial planner can tell you more.
Call us in Perth at (08) 9472 9766 to find out if a reverse mortgage is right for you.