If you are approaching retirement age, you may wonder how you’re going to get by financially. If you don’t have enough retirement income set up, you may use the investment you’ve made in your home all of these years. A reverse mortgage allows you to tap into your home’s equity, using the funds now while you are alive without the need for monthly mortgage payments like a standard loan requires.
How a Reverse Mortgage Works
As the name suggests, a reverse mortgage works the opposite of a standard loan. You don’t make regular monthly payments. Instead, you borrow the allowed amount, and the interest accrues on top of the amount you borrowed. You don’t pay off the debt until you move out of the home into a long-term care facility or you die at which point your heirs will pay it off.
Your home serves as collateral for the loan, just like with a standard mortgage. However, in this case, you don’t have to worry about eviction or repossession as long as you use a lender that is a member of the UK Equity Release Council.
Receiving the Funds
You have a few options as to how you’d like to receive your loan proceeds:
- One lump sum
- As a monthly income
- As a credit line
However you receive the funds, it doesn’t need to be repaid until the last homeowner passes away or each of you moves out of the home.
Who can get a Reverse Mortgage?
Anyone over the age of 55 is eligible for a reverse mortgage as long as you own your home with no mortgage and have lived in the country for at least six months. If you live with your spouse, the youngest applicant must be at least 55 years old.
Some lenders do have a maximum age limit. It depends on the lender, though. On average, 85-years old is the maximum, but many lenders will go above that. In general, lenders want to know that you are of sound mind when taking out the mortgage, which is more important than your age.
How Much Can You Borrow?
The exact amount you can borrow depends on your age, health, and the value of your home. Lenders take into consideration your life expectancy when determining how much you can take. The younger you are, the less you will be able to borrow since you are expected to live longer than someone older than you. Each lender has its criteria regarding the exact loan-to-value ratio they will allow, but most allow you to borrow up to 50 per cent of the home’s value.
Lenders will need to ensure that your property is saleable for them to give you a reverse mortgage. They rely on the sale of your property for you or your heirs to pay the loan back. If you are of age, the property passes the lender’s requirements, and you can prove that you can afford to maintain the home, a reverse mortgage may be the perfect way to fund your retirement.
It’s best to work with a qualified mortgage advisor when looking for a reverse mortgage. You need someone that understands the process and will look out for your best interests to ensure that you have the money required to enjoy during your retirement years.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.