Also known as an “equity release”, reverse mortgages are specifically designed for homeowners over 55 who want to tap into their home equity. With a reverse mortgage, you’re allowed to take out a mortgage worth up to 55% of your home equity, which can then be paid to you tax-free, either as a lump sum or in monthly cash deposits, depending on the lender’s terms. You can use this money for any purpose without restrictions.
Reverse mortgages are purely based on your home equity - the lender does not look at your credit score, and there are no income requirements. However, any existing mortgages on your home have to be repaid before you take out a reverse mortgage.
How much you can borrow depends on your age, your home’s location, and your home’s appraised value. Different lenders have different ways of calculating the maximum amount you can borrow, which is why getting multiple offers on the table is so important.
The most important thing about reverse mortgages is that you keep ownership of your home no matter the scenario. This type of mortgage does not require repayments unless you sell, permanently move out of your home, or in the case of death. However, you can choose to make repayments if you wish to.
The biggest downside of reverse mortgages is that the interest rates on these types of mortgages are typically higher than those on traditional mortgage products. This is why it’s essential to talk with a mortgage professional to assess whether or not this is truly the best mortgage option for you.