Are you considering a reverse mortgage?

March 22, 2016 by Brendan

Advice & Tips

Reverse mortgages are a popular option for many people, especially those who are in retirement and only have a small amount left to pay on their mortgage. A reverse option can provide a healthy income during retirement, which may otherwise not be possible.

How does a reverse mortgage work?

The lender provides a loan against the equity in a property, which is generally in a lump sum but it may also be paid on a monthly basis or as a line of credit. This allows the borrower to borrow what they require, when they like. Although a borrower remains the owner of the property, no repayments have to be made until the last remaining owner dies, sells the property or moves. At this time, the loan is repaid in full.

The advantages of a reverse mortgage

Rather than remortgage a property, which is subject to a good credit rating, many people opt to apply for a reverse mortgage as it provides income that may not otherwise be available, without any expensive repayments to worry about. Although some lenders will offer a reverse mortgage for a specific purpose, others will lend the money for any purpose, including a holiday of a lifetime, home renovation or debt consolidation.

Disadvantages of a reverse mortgage

The mortgage fees for a reverse mortgage are likely to be high, which may not be affordable. The loan balance is likely to be inflated by the monthly service costs, closing costs and application fees, which attract interest over the loan term.

Reverse mortgages are just one of the topics covered in the CeMAP training courses for mortgage advisers.