There has been a lot of press recently about this type of finance.
So what is it?
Basically is the reverse to a traditional mortgage, whereby you take a loan out against the equity already accumulated on a property. Though the borrower does not have to make any repayments and still retain full ownership of the house.
This type of lending is usually only available to people of the age of 62 years old and who either own their home outright or only owe a small amount on an existing mortgage that can be paid off with the proceeds from the reverse mortgage.
With reverse mortgages, credit ratings is an irrelevant factor when lenders are assessing the eligibility for a loan.
Reverse mortgage can also be used by homeowners for a specified purpose, such as paying for home repairs, debt consolidation and pension top-ups, but in general they can be used for anything.
The interest rates set by the lenders are typically higher than those standard mortgages because of the benefit associated with this type of mortgage i.e source of funding with no monthly payments.
Disadvantages of reverse mortgages that need to be taken into:
- Usually high upfront mortgage fees
- Application fees &Monthly service fees (which can be added to the loan)
- Accrued Interest on loan that has been drawing down
Therefore, careful consideration should be taken before applying for a reverse mortgage, even if the benefits of a reverse mortgage appear in principle to outweigh the costs.
Note: Informational purposes only, It is essential that anyone considering taking out credit should obtain professional advice.