Reverse
Mortgages: What are they?
They
allow (elderly: typically 65 +) home owners to spend the equity they have built
up in their homes, with
repayments due when the owner moves or dies. Repayment is usually made at the
sale of the house or when heirs use other assets to repay the debt. Basically
they give you the ability to turn part of your property into cash and supplement
a pension or other income stream. You are advised to seek independent advice
when taking out such a product.
Advantages
 |
Normally borrowers can borrow up to 35 per cent of the value of the house |
|
Can choose to withdraw cash such as one lump sum, periodic payments or a combination of both. |
|
Usually all interest, fees and charges can be capitalized. (i.e. Loan repayments will not be required). |
|
Can be used for renovation purposes. |
Disadvantages
|
New
product solution in the market. As yet no long term track record. |
|
Very
dependent on house valuation (market movements) |
|
The
lender takes a mortgage over the property in the normal manner |
|
Normally
a variable interest rate, set at a higher interest rate than the usual
standard variable rate |
|
Family
implications: bequeath the house to children, lesser inheritance, estate
issues |
|
Interest
charges have to be paid off at some time (when house is sold). |
Interest
Rates Charged
These
of course vary from product to product but as a general guide they are between
8.00–9.00%, which is higher than normal variable mortgage rates.
Tip
for the month!
Mortgage
Refinancing
Refinancing
gives you the chance to clear an existing mortgage, plus any other debts such as
personal loans or credit cards and leaves you with
one easier to manage monthly repayment. In some cases people can borrow more
money and find that they are paying the same or less than their current mortgage
repayment.
Also
you may qualify for a “professional pack” rate and may not even realize it.
Due to the dramatic rise in property prices equity values have built up. By tapping into this you can extract more cash out for purposes such as investing or renovating. Loan to valuation ratio's still should not exceed 80% under a refinance to avoid penalties and lenders mortgage insurance.
Contact us: enquiries@directadvisers.com.au
