You may have heard that a reverse mortgage is a way to borrow against the equity in your home without having to sell your property first and without having to make monthly payments. Both of these statements are true, but before you run out and sign up for a reverse home loan, you need to understand the process and make sure you meet all of the eligibility requirements.
First of all, reverse mortgages are only available to seniors who are 60 years or older. Although neither the principal borrowed amount or interest on that principal need to be repaid during the life of the loan, both amounts are due at the end – which comes when the homeowner dies, sells the home, or moves out for more than 364 days .
If you are seriously considering getting a reverse mortgage, here are some of the factors that will increase your likelihood of getting the most out of your loan without threatening your financial future:
- A reputable lender. The recent economic crisis has led several banks in Australia to stop offering reverse home loan products, at least temporarily. Be patient and look for an established bank or lender that will take the time to explain the process and risks to you. Do not be tempted by lenders who promise you a large return with almost no risk; unfortunately there are unscrupulous companies which practices risk not only the money you give them, but your entire home as well.
- Good home value. The amount you may borrow is based in part on the value of your home, so the more it is worth, the larger the loan you will be able to take out. What's more, if the value of your home increases during the loan period, you will be able to keep that equity after the principal and interest from the loan are paid off. Try to keep your home in good repair so that it is worth as much as possible at the end of the loan period.
- Plans for the future. Before you decide to take out a reverse mortgage, you should have specific plans for both the money you receive and also for what you intend to do at the end of the loan period. This type of loan is specifically intended to allow borrowers to remain in their home while they use the money they borrow. If you intend to move out of your home in the next year or two, such as to an assisted living facility or retirement community, it might make more sense to simply sell your home outright at that time. But if you would like funds now for things like travel, pursuit of a hobby, monetary gifts to relatives or other reasons, then a reverse home loan may be the best plan for you.