When you’re facing a financial dilemma, it’s vital to gauge your assets and see which ones can lead to less disadvantageous opportunity costs. If maxing out your credit card will be a poor choice, it’s best to look at your other liquid assets clearing your new debt.
There’s more than one way to change and utilise your mortgage for other financial procedures. For example, you can use a reverse mortgage to borrow money with the pent-up equity you’ve accumulated on your home to receive a lump sum. It’s a loan that can get you out of different debts for emergency payments in exchange for using your property as security.
Riding the increase in home equities in recent years
Regulator Australian Securities & Investments Commission (ASIC) notes that reverse mortgages are increasingly becoming a popular financial option, with loan books in banks reaching up to $2.5 billion in 2017. It’s not an uncommon phenomenon, especially with the increasing prices of real estate over the years. Because of this. Home equities can fetch a good price for homeowners to utilise as a liquid asset without selling the actual property.
Most homeowners maintain their properties for a potential payout after paying off their mortgage. Thankfully, homeowners don’t have to wait until they leave their homes before they can capitalise on their property’s equity. Reverse mortgages can be beneficial for older homeowners and retirees who need immediate access to funds without selling or relinquishing ownership of their homes.
Understanding how reverse mortgages work
Unlike traditional home loans, a reverse mortgage is a loan plan that allows you to remain in your home without continuing your monthly payments. Instead, the buildup of the outstanding balance will be due once you sell the property or after the borrower passes away. Like any loan option, reverse mortgages have an interest rate that’s typically higher than most home loan rates. Additionally, compounding interest will ramp up faster since there are no repayment terms.
Different fees and additional costs will depend on your initial lending plan and the size you’ll borrow. Your lender will have their own restrictions on the minimum and maximum threshold you can borrow. They will usually value your age, property’s value and method of receiving the funds to gauge how much you can get from your home’s equity. You can use a lender’s reverse mortgage calculator to determine an estimate you can borrow.
Gauging the viability of reverse mortgage
Every loan option will come with benefits and drawbacks. For reverse mortgages, the main advantage you get is the ability to stay in your home while pushing back other repayments. Additionally, lenders can give you flexible choices on getting the amount borrowed, whether you want a limp sum, regular instalments or as a line of credit.
On the other hand, mortgages also come with some significant drawbacks. For example, a strict rule on reverse mortgages is that borrowers must be 60 or older to qualify for the loan plan. Also, the interest and outstanding balance can compound significantly later since you’re not making regular payments. If you plan to sell your home soon, you should realise that your equity will decrease together with the increase in your outstanding balance.
If you’re out of options with your current stack of debts, a reverse mortgage can be a reliable safety net for senior citizens and retirees. However, it would help if you were particular about your lender’s guidelines before committing to a reverse mortgage. Like any other loan, it’s best to shop for alternatives and compare rates with other providers.
If you need help in finding a flexible reverse mortgage in Sydney, we're the right company to call. At Wealthy You, we employ versatile mortgage brokers who can oversee your financial troubles. Contact us now at (02) 7900-3288.