People retiring in Australia often receive relatively low pensions that are simply not enough for a decent life. That's why seniors in Australia are deciding to take action and fund their pensions with alternative sources. This is where reverse mortgage plan comes into play. So what are the alternatives to reverse mortgages and how can a senior citizen use this loan?
The reverse mortgage plan is a loan provided by the banks based on the property the senior citizen owns. The banks give a loan and in return, they get an equity of the shares of the property that the owner has. There are two alternatives to reverse mortgages. You can either get a lump sum or receive a monthly payment that will be a sort of injection to the regular pension which is often too small to be enough for a good living.
The first alternative is to receive a lump sum. This means after you sign the deal with the bank, you'll receive the full amount of money you agreed on, and the bank will place a mortgage on your property. After that, you have no other worries. The bank will cash theirs only after you pass away or you decide to sell the property. Of course, over time, the interest will provide the bank a higher equity of the shares of your place, but the sum can never exceed the value of the property.
However, it's really important to get a loan from a bank that offers a lower interest rate, because you never know what life brings. If your house is worth, let's say $200.000, just a 0,05 difference in the interest rate can make you lose more than 20.000 after 20 or 30 years. There's no reason to give all this money to the bank if you can get it for yourself or for your family.
Another side of the alternatives to reverse mortgages is to receive a monthly payment, just like you receive your pension. This is a good option for those that have a small pension or have no pension at all. This way they can continue living their life like they used to before. The rules are the same, the person asking for a loan needs to have a property on their name and the bank will place the same mortgage on it. After you decide to sell your property or you pass away, the bank will get their money back with the agreed interest, and that's why it's important, again, to look for the best rates.
The second option is great for people who like to continue their life the same way they did before, and the first option is excellent for people that like to invest, travel, or chase the dreams they had while they were working but never had the time to make them real. Since it's very hard to get a loan when you're a senior citizen, this is the best possible option - just choose your alternative.