The Truth about Australian Reverse Mortgages

Reverse mortgages can allow you to free up money to maintain or increase your standard of living. You don't need to make repayments, but the longer you have the loan the more the debt will grow.

(PRWEB) May 28, 2005 -- Reverse mortgages can allow you to free up money to maintain or increase your standard of living. You don't need to make repayments, but the longer you have the loan the more the debt will grow.

You can use the money for all types of expenditure, but the real advantage is probably that you can increase your standard of living by using your assets and not additional income. Reverse mortgages can also allow you to keep your financial independence without the need to sell your home and relocate to a smaller residence, which will involve additional costs.

As part of the application process you will need to consult a financial planner, this is to protect your interests and make sure you receive impartial advice. Before you can proceed you will have to sign a document to the effect that you have understood the advice given to you by all parties.

How they work?
In a conventional home loan the amount of the loan decreases because of your repayments. With a reverse mortgage you do not need to make any repayments but interest is applied to your loan and the debt grows rather than diminishes. With the current interest rates, this means that the amount you owe would double in less than 10 years.

You are only allowed to borrow a proportion of your properties value and this varies on your age and lender. For example Bluestone will lend joint borrowers aged 60, 11 percent of their properties value and this increases up to 45 percent for borrowers aged 85 -- 90. The strict lending criteria will safeguard against accumulating a large debt. Another safeguard is the fact that regardless of how long you live the debt will never exceed the properties value. This is often a concern of potential borrowers.

Most lenders of reverse mortgages offer variable and fixed interest rates for the term of the loan. So if it is important to know exactly how much you are going to pay, then you can opt for fixed interest option and have that peace of mind.

Joint owners
Lenders will allow joint owners to stay in the house until they sell it, move or both die. If you live with a partner or spouse the reverse mortgage would be in both names so your home is protected from being sold as long as one of you lives there.

Single owners
If only one of you owns the house, be careful: the loan will only be in one name so it will have to be repaid when the partner who owns the house dies or moves out, possibly into residential care.

Disadvantages
The main disadvantages of reverse mortgages are they can limit your options in the future. If you or your partner lives a long time, the debt will keep accumulating and the value of your estate may be less than anticipated. Taking the loan as a lump sum may have an impact on your eligibility for Centrelink payments.

Advantages
The outlook is not all doom and gloom though. If property prices are increasing, the accumulation of interest can often be off-set by the increase in property value. In fact if money is an issue in later life, you may well be better off staying where you are, taking out a reverse mortgage. Moving to a smaller home will mean a smaller equity increase if prices are rising and there will be costs associated with any move.

Summing up
A reverse mortgage is a valuable option for certain types of people, for instance older couples that are asset rich with a large property but are cash poor with very little disposable income. It can make the latter years of your life comfortable and certainly more enjoyable.

If you wish to know more about reverse mortgages or feel this may be an option you would like to explore further, please call Mortgage Miracles on (08) 9456 3925, or contact us via our website www.mortgagemiracles.com.au.

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