For the majority of those looking to buy or invest in property, the purchase of such assets could never have been done without a mortgage. Mortgages are by far the most popular way to purchase a property, however most people may have never heard of a reverse mortgage let alone a reverse mortgage broker.
In the terms of a mortgage, the home owner will make a payment to the lender (usually a bank) on a regular basis (monthly, fortnightly, weekly). This payment will increase the equity the home owner (less interest) has in that property until the mortgage has been fully paid and full equity is that of the homeowner. This is a very simplified definition of a mortgage but should be sufficient for the purpose of this article.
A reverse mortgage, also known as an ‘Equity Release Loan’, on the other hand, is well, the reverse of that. A reverse mortgage allows a home owner to take out a loan based on the equity in their house, whether it be in a large lump sum or through monthly payments. There is no need to repay the principle loan amount until you have left the building for more than a year, sold the house or death. In the case of death, the house is then eligible to be sold in order to pay off the reverse mortgage. a number of years
Reverse mortgages are more predominant in the US, where you are required to be an aged citizen, 62 years or older in order to be eligible for a reverse mortgage. In Australia, it is also designed specifically for the elderly who have most of their wealth tied up in non-liquid assets such as the house they live in.
The downside to a reverse mortgage is usually the start-up costs which are usually much higher than standard mortgages. Also most reverse mortgage lump sums or total monthly payments are limited to a maximum of 45% of the total equity the homeowner has in the property.
Due to the complexity of setting up a reverse mortgage, using your closest reverse mortgage may be the easier option.
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