What is a Reverse Mortgage?
A reverse mortgage allows individuals to borrow money using the equity in their home as security. The loan can be given as a lump sum, a line of credit or a regular income stream. However, this type of loan is aimed at retirees.
This type of mortgage is not new, originating in the UK back in the 1920s. In recent times there has been a significant increase in use of reverse mortgages in Australia with the current market worth above $3 billion.
This type of loan arrangement is commonly used for debt consolidation, supporting an income stream and home improvement. It has been suggested that this is a great option for retirees as it allows them to stay in their home, have access to equity and have minimal impact on their pension entitlements.
The Government introduced ‘negative equity protection’ on all new reverse mortgage contracts after 18 September 2012. This means that borrowers cannot owe more than their home is worth.
For example, after a mortgage contract is complete and the borrower sells their home, the lender will receive the proceeds from the sale and the borrower cannot be held liable for any debt in excess of this amount. Of course, if the house sells for more than the owed amount, the borrower will be entitled to these extra funds.
If you require any further information in regards to reverse mortgages, contact The Quinn Group on (02) 9223 9166 or submit an online enquiry.