Reverse Mortgages - Mortgage Broker Bowral & Moss Vale
Understanding reverse mortgages
If you are looking to borrow money in retirement, a reverse mortgage may allow you to use the existing equity in your home to act as security to access additional funds, rather than relying on your regular income stream alone.
How does a reverse mortgage work?
A reverse mortgage allows you to take a loan as a lump sum, an income stream or a line of credit without having to make repayments while you
live in the home.
Like a normal loan, interest continues to be charged on the amount drawn down, but unlike a normal loan, a reverse mortgage (including interest and fees) is usually repaid in full when your home is sold, you pass away or, most commonly, you move into aged care accommodation.
How is interest charged?
Although you will not have to make regular repayments to the loan, interest and fees are added to the loan amount each month and that interest compounds. This means that in addition to the balance you borrow, you will also pay interest on the interest and the fees or charges that are applied to the loan. Interest rates on a
reverse mortgage are also typically higher than for a standard loan.
As a result, the amount you owe the lender will increase over time.
Once a reverse mortgage is paid, what will you be left with?
Let’s say the value of your home is $450,000 when you take out a reverse mortgage of $50,000. Over 20 years, your debt will grow from $50,000 to $272,060.
At the time you leave your home, if its value has not increased, you will have $177,940 remaining once the loan has been repaid.
If the value of your home had gone up at a rate of 3% per year over 20 years, your home would then be worth $812,750. Once the loan was repaid, you would have $540,690 remaining.
