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Are you interested in a reverse mortgage?


We hope you find our site helpful. We know taking out a reverse mortgage is a big decision and we want to help you every step of the way - no matter what stage of enquiry you are at.


Use our reverse mortgage calculator. Find out more information on reverse mortgages Read up on reverse mortgage news.


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What is a Reverse Mortgage?


A reverse mortgage is the latest tool to help plan and fund retirement.It is a way of making the most of the value of your property. Typically, one would enter into an agreement with one of the few reverse mortgage lenders to turn your equity into readily available finance, without the need to move home.


Reverse mortgages are, simplistically, agreements with the provider that they will place a charge (similar to a mortgage) on your home, in exchange for offering you a cash lump sum which doesn't have to be paid back until you pass on or move into care.


Typically, you would have to be aged 62 or more and own your own home to be eligible for a reverse mortgage. Usually, the home must be your main residence (6 months of the year or more).


There are no repayments to be made during your lifetime and the interest rolls up over the years to provide the reverse mortgage lender with a return on their long term investment.

Why is it called a reverse mortgage?


The plan is called a reverse mortgage because, instead of costing you money, the home is paying you. Usually, a mortgage is the homeowner's biggest expenditure and lots of payments are put 'forward' towards depleting the mortgage and building your equity stake in your home.


Instead of you paying the bank, the bank is paying you.


One simplistic example:

You take out a reverse mortgage on a property in the amount of $200,000. The term of the reverse mortgage is a 10 year period. The bank will pay you $1666 a month for that 120 month period.


This money can help you fund the basic needs of retirement. Dependant on other forms of finance, it may also be used to supplement your income to pay for life's finer things so that you can enjoy your retirement the way you deserve to.

 

What Factors Determine The Terms?


The terms of a reverse mortgage are different for each individual. Which is why at Responsible Reverse Mortgage we aim to offer you a personal service to make sure you get the terms that are right for you.


Factors that help determine the term include the following:


  • How old you are - In the case of a couple this is decided by the youngest person.
  • How much your home is worth
  • The type of plan you choose - there are private reverse mortgages available in addition to the government sponsored HECM reverse mortgages.
  • The method through which you choose to receive your money - Currently, there are five payment plans:
  • Tenure (Also Known as a 'Reverse Annuity Mortgage')
  • Term plan
  • Line of Credit
  • Modified Tenure
  • Modified Term

Click here to read more about the different types of reverse mortgage payment plans

Can I choose how to receive my money?


If you take out a reverse mortgage, one of the major advantages is that you can choose how you would like to receive the money that you release from your home.


Some clients like to know that they will be receiving a fixed income for a set term whilst others will like to take a more proactive stance in managing their money and want a lump sum. Others might know that they are likely to need a certain amount over a period of time, but are not so sure exactly when they need it.


Fortunately, with a reverse mortgage, there are payment plans to suit everyone.


The Tenure Plan:


Here the borrower receives equal and regular monthly payments from the reverse mortgage lenders for as long as they live and remain in the property.


The Term Plan:


Here, similar to the Tenure plan, the borrower will receive equal and regular monthly payments from the reverse mortgage provider with the exception that the payments are made for a certain length of time, or term. The term of the plan is decided by the borrower and agreed by the lender. What's important to remember is that repayment isn't necessarily due when the term is over. Repayment is due when the borrower dies or ceases to live in the property anymore.


Line of Credit Plan:


The line of credit is without doubt the most popular reverse mortgage plan. Here, instead of a monthly payment, the borrower decides as and when they need the money, instructing the reverse mortgage lender to issue an installment. Payments are unscheduled and it works in a 'line of credit' where there is a pre-determined maximum claim amount which the borrower can dip into when they want.


Modified Tenure Plan:


The modified tenure plan is a 'combination' plan. Like the tenure plan, the borrower will receive regular monthly payments for the rest of their life or residency. On top of this, the borrower can request money as and when they need it, up to their line of credit.


Modified Term Plan:


Another 'combination' plan, the modified term plan combines the Line of Credit Plan with the Term Plan. Here the borrower will receive regular monthly payments for a fixed term (decided by the borrower) but retains the ability to draw more money from the lender, up to their line of credit, as and when they want.


 

Can I change the reverse mortgage rates?


The short and simple answer is YES.


Many people who have taken out a reverse mortgage decide that their needs have changed and it is time for them to change their payment plan. Perhaps a major unexpected expense has come up and they would benefit from a lump sum as well as their regular payments.


Whatever the reason you want to change your reverse mortgage rates or terms of your , you can choose refinancing at a small cost.


The Pros and Cons of Reverse Mortgages


PROS


  • If you take out a government sponsored reverse mortgage, you will never be forced to leave your home

  • You will never leave any debt to your heirs. If the unlikely should happen and there is a difference in the value of your home and the size of the debt, the Housing Department will cover the difference.

  • The money you receive from a reverse mortgage is tax-free. It is your home, your money and you will have already paid tax on it.

  • You can earn interest on funds left untouched in your line of credit, assuming you opt for a government regulated plan.
  • You have already built equity in your home and so the qualification standards for senior reverse mortgages are far less rigorous than conventional mortgage and finance products.


CONS


  • Reverse Mortgages may affect your entitlement to state benefits.

  • Some of the costs involved in setting up a reverse mortgage, whilst relatively insignificant compared to the amount of tax-free money you receive, do require a financial commitment from you.

  • You won't be able to access your entire equity stake in your property.

  • You will need to pay for mortgage insurance to protect the investment that your reverse mortgage lender has made.

What can I do with the money?


Many people find themselves in a house-rich, cash-poor situation where most of their earnings have understandably gone into their home and not a savings plan over the years. A reverse mortgage can effectively turn your home into a savings plan, allowing you to access the capital tied up.


The recent economic events have taken their toll on retirement and savings funds, leaving retirees with little options when it comes to retirement finance. A reverse mortgage may be a good way to make up the shortfall some people experience when they retire.


You may use the money to purchase a new car to get around, go on that holiday that you have dreamed of, or even help pay the bills. Either way, the benefits of an extra source of income during retirement are obvious to see.


Many seniors are turning to reverse mortgages to help their families out in these times of recession and hardship. Others are converting homes to accomodate family m
embers who may be struggling or out of work.


Either way, you can use the money exactly as you see fit.

 

 

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Any information contained herein is a personal opinion of the author and should not be considered to be advice of any kind.