Wise up before committing: Reverse mortgages

If you are looking for long-term financial relief in retirement without the burden of immediate commitments, you would be well advised to consider a reverse mortgage. Although a regular mortgage certainly can bring some financial relief, the monthly repayments can be crippling, whereas a reverse mortgage allows you to access your money without the pressure of immediate repayments.

Easy repayment terms

It seems too good to be true, but a reverse mortgage doesn’t bind you to monthly repayments. A conventional home loan has very strict and binding terms that force you to pay towards it monthly, but with a reverse home loan, you are able to prolong the repayment terms simply by sticking to the rules of the agreement: you have to legally own your house and stay in it permanently.

Easy access to cash

The reverse mortgage allows you some financial liquidity in retirement. You can set up your loan to pay you out in regular, monthly payments – almost like a salary – which can help you with general monthly expenditure.

You could also approach it as a lending facility, where you can borrow money on an ad hoc basis, as you need the cash. Utilised in this way, it becomes similar to a credit facility. Finally, you could also opt to have it paid out in one go, in one large amount. This option would be useful if you had to deal with any large, sudden expense, such as hospitalisation, where you have direct access to your funds without incurring debt.

Safe as houses

Because you can’t miss payments on a reverse home loan, the risk of foreclosure becomes significantly lower. But be vigilant – you still must adhere to the loan terms and conditions in order for it to remain valid. The home that is linked to the loan should be your primary residence, and you have to be the legal owner, otherwise, you will be in breach of the loan prerequisites. Other than that, reverse loans are a very safe form of a loan, as you do not have the added stress of monthly repayments to contend with.

Stay put

Because primary residency is a condition of a reverse home loan, you will not be able to pack up and go live in another house, or you will risk losing the validity of your loan. This does bring a small amount of pressure into the picture when it comes to contemplating long absences from home, but luckily, going on normal vacations is absolutely fine. 

Conditions to consider

A reverse home loan application is subject to a few compulsory conditions, such as the requirement to be 62 years old or older, before you can apply. Another is that you will not be allowed to hold two mortgages concurrently. How do you solve this problem? Simple: just make sure that the outstanding amount on your original loan is covered by the funds made available by the reverse loan. After all the fees have been deducted, the balance is yours to use.

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