Conveyancing & Property - Reverse vs Standard Mortgages

Impact of a Reverse Mortgage

The primary benefit of a reverse mortgage is that it increases your income in retirement and allows you to stay in your home. 

You retain ownership of your home.

It also has an impact upon the value of your Estate, as it will reduce the equity in your home, which will leave less for your beneficiaries.

You should address a Reverse Mortgage with your beneficiaries before committing to the same.

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Reverse vs Standard Mortgages

A reverse mortgage is repaid when the borrower dies, moves from the residence, or the property is sold.

The Benefits of a Reverse Mortgage

A reverse mortgage increases your income in retirement. A reverse mortgage increases income, without increasing monthly payments, and allows you to stay in your home.

Key Points

  • You retain ownership of your home.
  • The reverse mortgage is a charge upon your home.
  • A reverse mortgage is a “non-recourse” loan.
  • If the loan amount is more than the value of your home at the time when you want to pay out your loan, you never pay more than the value of the home. This is also known as “no negative equity guarantee”.
  • You can use the proceeds to pay off your existing mortgage.

The reverse mortgage is repaid when the borrower dies, moves from the residence, or the property is sold.

The Negatives of a Reverse Mortgage

Fees, which can include the interest rate, loan origination fee, mortgage insurance fee, valuation fee, and various other costs, are high when compared with a standard loan. Costs are normally rolled into the loan.

There is a requirement to pay back the loan, if you permanently leave the home. eg to go to a Nursing home/Retirement Village. If you need to enter a Nursing Home, the loan would become payable. Namely, the timing of the Sale will not totally be within your control and you may need to sell when the market is depressed.

A reverse mortgage impacts upon the value of your Estate, as it will reduce the equity in your home, which will leave less for your Beneficiaries.

Prior to considering a Reverse Mortgage you should speak to the major Beneficiaries of your Estate, as they may be prepared to advance funds to maintain the value of their inheritance.

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