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Look for the Right Information on Reverse Mortgages

December 18, 2017

Even though you might be cash poor, you might have a property which gives you equity. The Australian situation is such that it allows people to, in fact, get paid for the property that they own. Well, it is a little bit more complicated than that but if you get the right information on reverse mortgage, then you just might find a way out of your financial woes.

 

For instance, upon review of Australia’s reverse mortgage regulations, we see that only senior citizens are eligible for them. There’s nothing wrong with that as it is mostly retirees who struggle with their cash flow. Elders in Australia often own properties but do not have the cash in their bank accounts. The reverse mortgage product allows them to loan money in exchange of home equity. The more equity released, the more money loaned – that’s how the system works.

 

There are some rules that apply and they need be taken into account. Once a family or individual has gathered all necessary information on reverse mortgage, only then they should step in a legal agreement with a bank. For example, only people above the age of 60 are eligible for a reverse mortgage. If they apply for a loan at this age, they will likely be allowed to only monetize about 15% of the equity that they have. As they become older, the bank will allow them to release more equity and therefore get more money. The age of the youngest borrower is the one that matters.

 

You will not be asked to pay any monthly fees or installments. Instead, the loan is repaid upon the sale of the property or after the last borrower passes away. There is still interest and in fact, it is a compounding one. This means that as time passes, you end up owing way more than the initial loan you have taken. Add fees to this and a $50,000 loan at the age of 60 could turn into a sum of over $200,000 for you to repay in 15 years.

 

But wait, does that mean that if I sell my home for $180,000, will need to pay an extra $20,000 straight out of my pocket? No, this is why it is important to get the proper information on reverse mortgage. In 2012 the Australian government accepted a bill stating that there is no “negative equity”. This means that one cannot pay back more than the sale price of their home during a reverse mortgage.

 

Even though, there might be some “scary” aspects of a reverse mortgage, you can still benefit from it. It is really useful when people are in need of a lump sum for a home renovation or maybe for that trip they have been putting off. You can also opt to get a regular stream of money and not a lump sum but it is rarely a convenient choice to many.

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