What Are Reverse Mortgages?

Posted by on February 28, 2017

It’s fairly safe to assume that there are several types of people in this world. There are those that are happy to rent, those that can’t wait to buy and those that already own a home. When buying a new house, you’ll most likely need a little financial support from one of your local mortgage brokers, but what about those of you that have already borrowed money, paid back your home loan and no longer have a mortgage?

Well, the borrowing potential doesn’t have to end there. Did you know that even if you were in your 60s, you could actually use the collateral value of your home as a way to obtain further cash from a lending agency? This is what we like to refer to as a reverse mortgage, but unlike regular loans, these ones can be far easier for home owners to obtain and take advantage of – without having to undergo the rig moral of applying for a brand new loan on a home.

Reverse Mortgages Explained

Let’s imagine that you borrowed a large sum of cash 30 years ago, say $750,000 AUD from your bank. If you’ve been working hard the past 3 decades, then the chances are that you’ll have repaid your home loan and are now enjoying life as a sole property owner. But what if you and your partner suddenly decide to take a trip on a ferry to travel the world, or if you’d like to spoil the grandkids?

Well, beyond your savings you do actually have another option – and it’s known as the reverse mortgage. Why it’s called this, we don’t fully understand; it’s not so much a mortgage as it is a collateral loan. It works by allowing you to apply to a bank to provide you with a portion of the value of your home, in exchange for them taking ownership of that portion.

Alternatively, you could agree to pay it back over time and once the repayments have been met in full, the property will be all yours again. But now we’re sure that you have another question… what if you are no longer around to make your repayments? Well fret not – even this event can be easy to understand. The whole point of a reverse mortgage is that instead of applying to a lender to borrow money to cover the cost of a home, you will be using your home as a way to borrow money.

The value will still be there even if you aren’t, so if you are an older individual that’s concerned about your debts carrying over to your next of kin, then don’t worry. The bank will simply reclaim their portion of their investment when the house is sold. If you’d prefer to keep it in the family, then your next of kin could take on the debt instead of you and pay off any amount that has been left outstanding.

Is it really as simple as that?

Yes – you could use $50,000 AUD of your home’s value to buy whatever you want and then repay back at a frequency that suits you. If you can’t meet the repayments, the bank will claim the outstanding amount when the house is sold, or they will allow the loan to be paid off by someone else and then sign that portion of the house over to them once they receive all that they are owed.

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