The advantage of taking a reverse mortgage now

By Darren Moffatt

August 13, 2017


Since it was introduced a decade ago, reverse mortgage has received a lot of expectation. People who were approaching retirement saw reverse mortgage as an additional retirement funding option, but still, the interest in the product was low because of high interest rates.

With a home loan, you take a lump sum loan and repay in installments. In the case of reverse mortgage, you take the loan in installments and repay the lump sum later. Interest rates of reverse mortgage are usually higher though. Because even though lenders receive payments later, they already need to pay tax on the accrued interest of the loan. This increases costs on part of the lender.

The lenders can only recover the loan after the borrower moves out the house, sells the house, or dies. This postpones the recovery of the loan and adds risk to the lenders. This is usually accounted in the amount you can borrow.

On the positive side, borrowers’ protection like No Negative Equity Guarantee (NNEG) assures borrowers that they cannot owe more than the value of the property. The fall in the interest rates also makes the product more appealing than ever. Reverse mortgage makes more sense in economies where interest rates are low.

Interest rates usually go up along with inflation. Taking advantage of lower interest rates now will give you interest savings on your reverse mortgage. You can take a reverse mortgage now and take it as a line of credit where you can draw money as you need. Some like to call it as a “standby reverse mortgage.”

Shall you go for a reverse mortgage now? The answer largely depends on your circumstances. If you are like most baby boomers that are asset-rich but cash-poor, a reverse mortgage can help you sustain your lifestyle and live a comfortable life throughout retirement.

If you want to know more about reverse mortgages, please don’t hesitate to contact us at 1300 745 745.

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