A reverse mortgage allows retirees to convert the equity in their home into accessible cash for a more comfortable retirement. So, what is a reverse mortgage? And how do you know if it might be the right fit for you?
How reverse mortgages work
Just like conventional mortgages, a reverse mortgage is secured against the borrower’s house. However, unlike conventional mortgages, the borrower doesn’t need to make regular payments on this type of loan. Once the loan is funded, interest is charged just as it normally would be, but the loan only needs to be paid out when the borrower sells their home, moves into an aged care home, or passes away.
What can it be used for?
A reverse mortgage can be used for a range of purposes, such as day-to-day expenses, consolidating bills, funding home improvements or renovations, travelling, or a specific purchase, such as a car. Here are few of the benefits that reverse mortgages offer.
- Stay in your own home longer – enjoy more time in the home you know and love.
- Fund worthwhile costs – living expenses, travel, medical expenses, home improvements.
- No need to make repayments – the debt will be repaid from the sale of the property at the end of the loan.
- Flexibility to make voluntary repayments if you wish to reduce your balance and interest charged.
- Negative equity protection – you’re protected from owing more than the value of your home.
Is a reverse mortgage right for you?
While a reverse mortgage can be a great option for “asset-rich, cash-poor” retirees, it isn’t for everyone.
P&N Bank has been providing reverse mortgages for some time and we ensure prospective reverse mortgage customers have a strong understanding of what is involved. Our lending specialists take the time to ensure you fully understand the nature of the product and how it can work best for your situation.
Everyone’s circumstances are different and it’s important that your lender understands what you need and helps you decide if a reverse mortgage is your best option. We also require you to seek independent legal advice before you apply for a reverse mortgage.
What else do I need to know?
Here are some things to keep in mind when considering applying for a reverse mortgage.
- Interest rates and fees are generally higher than they are for conventional mortgages.
- Because you aren’t required to make regular payments against your debt, interest will be charged to the loan and the debt will increase.
- A reverse mortgage may affect your pension eligibility.
What next?
When you’re retired and no longer earning a steady income, it can be difficult or impossible to qualify for most types of loans.
A reverse mortgage, such as P&N Bank’s Reverse Mortgage Home Loan is one of the exceptions to that rule and offers a valuable option for some retirees to access the locked up equity while allowing them to remain in their homes.
For more information, or to find out how much you’re eligible to borrow, please contact us on 13 25 77 and we can arrange for you to speak with one of our accredited reverse mortgage lenders.
Note: As of September 18 2012, anyone who takes out a reverse mortgage is protected from owing more than the value of their home. This is a measure put in place by the government and is known as negative equity protection. When it comes time for the loan to be repaid and your home is sold, the lender will receive the proceeds of the sale, and you or your estate cannot be held liable for any amount owing in excess of the value of your home. Conversely, if your home sells for more than the value of your loan, you or your estate will receive the remaining funds.
Before taking out a Reverse Mortgage product, seek appropriate advice and consider if the product is right for you. Credit products issued by Police & Nurses Limited (P&N Bank) ABN 69 087 651 876 AFSL/Australian Credit Licence 240701. Lending criteria, terms & conditions, fees & charges apply. Rates subject to change. The Target Market Determination (TMD) for this product is available.