Getting a reverse mortgage can help you leverage nest egg funds without losing the entire nest. But it’s not a walk in the park. Here are the challenges in venturing reverse mortgage and how we can help you reap the benefits of having one.
Reverse mortgages are recently swarming the news and internet this week. But it’s more like seeing two sides of the lending coin.
One hand shows that the Australian Securities and Investments Commission (ASIC) highlighted the importance of reverse mortgages to allow older Aussies to achieve their retirement goals.
However, ASIC also warned about the long-term challenges of getting a reverse mortgage. One is that most reverse mortgage borrowers have little to no understanding of the risks and future loan value.
The good news is that we at Plan A Mortgage have the knowledge to help you on both sides — achieving your financial goals and maximising loan value while minimising risks.
Reverse Mortgage In a Nutshell
The best way to define reverse mortgage is to think of it as the opposite of borrowing money to pay for a portion of the house price. Instead, a reverse mortgage is when the lender pays you for a part of your home equity as loan security.
Reverse mortgage borrowers can claim the finance in one large lump sum, monthly payments, or an extended line of credit.
Furthermore, older applicants can be approved for higher loan values. If you’re 60 years old, you can apply for a loan worth 15% of your home value. But if you’re 75 years old, you can get as much as 30% loan to value ratio (LVR) — that’s about 1% higher borrowing capacity each year.
Reverse Mortgage Pros
Loan borrowers don’t need to repay the loan any sooner until they vacate the house or pass away.
Reverse Mortgage Cons
Remember that a reverse mortgage is usually more expensive than a typical home loan. Rates for this loan type can go as much as 2% higher, and since you don’t need to repay the loan, compounded interest will grow.
Challenges of Getting Reverse Mortgage
The risks and challenges involved in a reverse mortgage come from the lack of understanding about how it works before signing the agreement.
Moreover, ASIC data reveals that lenders are also to blame for coming short of orienting and educating borrowers about reverse mortgages and the impact on their long-term financial needs.
All of the loan files reviewed by the ASIC also show that reverse mortgage borrowers’ long-term needs and financial objectives weren’t completely documented.
Reach Out to Us Today
In general, a reverse mortgage has both pros and cons that can be beneficial or detrimental for your financial goals along the way.
This loan type can definitely improve your quality of life when it comes to retirement. That is as long as you have a genuine discussion with your lender about your future needs.
Ticking checkboxes isn’t enough to guarantee your financial well-being during your golden years. That’s why we highly suggest speaking with us at Plan A Mortgage.
We’ll gladly sit down with you and discuss your retirement and financial goals so we can take you through suitable reverse mortgage options that work for you. Call us today, and we’ll let you know how we can help.
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