A reverse mortgage basically does what it says on the tin and allows homeowners who have paid off their mortgages to borrow a portion of their property’s equity as a tax free source of income as they approach their senior years. The term reverse mortgage comes from the fact that you are no longer paying the lender a monthly mortgage but they are now paying you. You might also hear this type of mortgage agreement also referred to as a ‘Lifetime Mortgage’.
This type of mortgage is typically used by senior citizens who have paid off their home loan and need an income for retirement, medical care and bills or even helping their own family to get on the property ladder. A reverse mortgage allows you to use the equity in your home when you need it, doesn’t require monthly repayments and then becomes payable if you die, permanently move out of your home into long-term care or sell the property.
As your property is the security against this type of agreement, you won’t be subject to the credit checks carried out with regular mortgage applications. The typical age range for an individual wishing to take out a reverse mortgage is 55 and above, although each lender does have its own age restriction or guide around this.
Reverse Mortgage Pros
- Tax free income when you need it
- There are no restrictions on what you can use the money for
- No monthly payments
- You can still move out of or sell your home if you wish
Reverse Mortgage Cons
- The income from a reverse mortgage may affect means tested benefit entitlements
- If you decide to gift the income to a family member they may become liable for inheritance tax
- Interest rates are on the higher side
All in all a reverse mortgage can be an ideal option for older people who want to get something back out of the equity in their home and enjoy their later years with a boost in income.
We hope this guide has been useful for you. If you are thinking about whether a reverse mortgage is right for you or you have any other queries about buying or selling a property, our experts are here to help and are happy to talk you through your options. Contact our team here.