Reverse Mortgage Loans


For homeowners who wish to earn from their property, renting or selling their homes are typically the two options that they first think of. However, if you’re a senior homeowner, there’s another way to gain access to money that you may not have heard of before: reverse mortgage loans.

Reverse mortgage loans are specifically designed for pensioners and retirees who own their homes. This program is not something that consumers have to make loan payments for. Rather, reverse mortgage loans allow homeowners to use the value of their home to borrow a lump sum, get fixed monthly payments, or access a line of credit. In summary, a reverse mortgage loan allows seniors to convert their considerable home equity into cash.

The loan product is available only to homeowners who are aged 60 and older, and it only becomes payable once the borrower leaves their home permanently, sells the property or passes away. There are rules in place to ensure that the lender does not lend more money than what the property is worth and then hold the borrower’s estate responsible for the difference later on.

At first sight, this seems like a great option for retirees who own property but are low on cash—and it is, to a degree. However, just like other financial products, reverse mortgage loans can offer a lot of benefits to some but may not be quite a good fit for others.


When Is a Reverse Mortgage Loan a Great Option?

Applying for a reverse mortgage loan is a great idea for pensioners who have put a great deal of investment into their residential property and want to put their home equity to practical use. They may want to stay in their own home, but there is a gap between the pension they get and the cost of living. It’s a way to get access to a sum of money that will allow you to fulfil your basic needs without assuming the responsibility of repaying the loan in cash for the foreseeable future. If the following apply to you, then it might be in your best interest to consider a reverse mortgage loan:


You Own the Home and Its Residents Are 60+ Years Old

First and foremost, getting a reverse mortgage loan is only an option if you qualify for it. When you apply for other types of loans, you’ll be asked to submit proof of your income prior to approval, for example, but this isn’t exactly the case with reverse mortgage loans.

When applying for this specific financial product, you—and your spouse, if you have one—must be of the right age and you must own the residential property. Remember that age is a factor when calculating the payout from the loan, and in many cases, it’s the age of the younger spouse that’s being considered. The younger that person is and the longer you’ll probably stay at the home in question, the smaller the amount that you can borrow.

At the same time, you need to own a well-looked-after house, meaning it should be well-maintained, have homeowners insurance, and should have up-to-date property tax if that is applicable. You should be able to keep up with these responsibilities as you prepare to apply for a reverse mortgage loan and while you’re benefiting from the said financial product. If you fail to do so, the lender might deem the balance due and payable even before you move out or pass away.


You Plan to Stay at Home for as Long as Possible

To make the most out of a reverse mortgage loan, you need to have a clear and realistic plan for the future. How many years do you see yourself living independently in your home? Determine if you’ll be able to make the most out of your home’s equity during that time, especially if you’ve decided to obtain the amount you borrowed in equal monthly payments or term payments. Take note that once you leave your house, the loan will be deemed payable. Either you return the money you obtained or the lender will claim the home as collateral. One usually does not plan to leave one home to go to a retirement village, but there may come a time when this is necessary, and this eventuality should be considered when embarking on a reverse mortgage contract.


You Have No Plans of Leaving Your Home to Other People

If you have plans of bequeathing your home to your children or relatives, applying for a reverse mortgage loan might not be the best idea. After all, the lender will take over the ownership of the property once you vacate the home, and this might not sit well with the people you’ll leave behind.

On the other hand, your children or relatives can still get the property back if they’re interested in it. They can purchase the property from you and you can put the money into paying the lender, or they can buy it from the lender once the property becomes available in the open market. Many choose to discuss their reverse mortgage plans and why it is needed, with their children so there are no surprises later on which may affect your love ones later in life.


A Few Caveats

While reverse mortgage loan offers plenty of benefits to homeowners aged 60 and beyond, it’s also worth noting that this type of loan is typically used by scammers who prey on seniors. Before signing any agreement, make sure you discuss your options with a professional who can give you independent advice concerning your financial options. At the same time, use this opportunity to determine your capability to pay for aged care and essential expenses, and what you want to leave behind to your loved ones when you die. Remember that while getting a reverse mortgage loan can afford you financial freedom, this decision will also significantly affect your family.

If you need further advise about mortgage loans, get in touch with Gerard Partners today.

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