Many Australian seniors still believe in the myth that the bank will take over the property if they put it under reverse mortgage. This is a pure misconception as the borrower will remain the full legal owner of the property, and the lender will only take the mortgage.
It is crucial to really understand how reverse mortgage works so you can be guided on how the product can help you during retirement and avoid losing the property.
How Reverse Mortgage Works
Because of the property boom in the last few decades, many Australian seniors now are considered as “asset rich, but cash poor”. After years of working hard and paying off their mortgages, the value of their homes have surged, but the equity is unlocked and their disposable cash is limited.
[ ALSO READ: Changes in Pension to Boost Interest in Reverse Mortgages ]
A reverse mortgage is a type of loan designed for retirees and pensioners who wish to unlock a part of their home equity so they can have the money they need for aged care fees, home renovation, additional regular income, and more.
Like the usual home loan, a reverse mortgage is also secured by the registered mortgage over the property. The amount of equity that can be unlocked depends on the age and the value of the property.
The interest is ‘capitalised’ -charged back to the loan account – and will compound over time so the balance of the loan will increase unless voluntary payments are made.
The debt, including all interest and fees owed, is repaid to the lender when:
- The borrower sells the property of their own accord, OR
- The borrower moves into aged care (not required with some lenders), OR
- The last surviving borrower dies
Will the Bank Take Over Your Home?
One great advantage of getting a reverse mortgage is that you can choose to stay at your home as long as you want. There is no need to move into an aged care facility or downsize.
As long as the borrower does not ‘default’ under the agreement by breaching key obligations, the bank cannot force a sale of your home.
[ ALSO READ: You Don’t Need to Sell Your Home to Finance Your Retirement ]
Reverse mortgage contracts vary between lenders but common default conditions include failure to pay council rates, keep the property fully insured, and wilful neglect or damage to the house.
Consult a Reverse Mortgage Specialist Today
To help you learn more about reverse mortgage, you can download our FREE REVERSE MORTGAGE GUIDE.
You can also call Seniors First Finance at 1300 745 745 or post your comments below.