Written by Esma Refik in October, 2007

Once you get to a certain age you can qualify to receive a reverse mortgage, what is that you might ask? It’s a system that allows you to borrow cash against the value of your home. It is great because you can receive money and not have to make repayments until you move into care, sell your home or die. You are eligible for a reverse mortgage if you are over 60 years old and own your own home. The lender will generally allow you to borrow between 15% and 40% of the value of your home.

Over time the fees and interest you would ordinarily pay are added to the loan balance and you’re charged interest on the interest which is built up to the total amount you owe. Subsequently there is a risk that the amount of the loan may increase to a point where it is more than the value of your home (negative equity). Some reverse mortgage products guarantee that if this happened you wouldn’t have to pay more than the value of your home (a no negative equity guarantee). This protection is only valid if you meet the requirements of the loan, for example, if you repair and maintain your home to a standard set by the lender.

The Following are some Pros & Cons of Reverse Mortgages

Advantages

• You can access cash as a lump sum, a regular stream of income or a combination of both

• You don’t need a current income to qualify.

• You get to stay in your home and keep ownership.

• You usually don’t have to make any regular repayments while you live in your home.

Disadvantages

• Interest rates are usually higher than average home loan rates.

• If you are the sole owner of your home and you move or die, anyone who lives with you may not be able to stay in the home with you.

• The loan may affect your eligibility for a pension.

• There is no way to know for certain how much you will owe at the end of the loan.

The reverse mortgage option maybe able to assist you or someone you know, however speaking to a financial advisor will ensure if it is the best option for you. It is imperative that you obtain independent legal advice on the loan agreement and the mortgage document.

This article is not legal advice.