Reverse Equity Loan
A Reverse Equity (Reverse Mortgage) Loan allows you to borrow funds using your home as security with no set repayments. These loans are designed for senior citizens who are above 60 years old and have large amounts of equity to borrow against. Hence these products also go by the name of "Equity Release".
These types of loans generally do not have any loan repayments and are repaid on the death of the borrower. As such, interest continues to accrue and is added to the loan.
The amount you can borrow depends on a number of factors, age of the applicant(s), value of property and what each lender will advance. Generally the older you are, the more you can borrow against your home.
The Benefits of Reverse Equity
Free up some cash!
You can borrow to pay for day-to-day or unforeseen expenses, travel, healthcare, a new car, etc..
No loan repayments!
You can choose to make no repayments or lump sum payments when you want. Usually lenders do not require this to be repaid until the house is sold or at the time of death.
If the value of your house increases as determined by a Registered Valuation Report then so does your equity and your ability to borrow more.
The Drawbacks of Reverse Equity
Reverse Equity loans cost more than your normal home loan.
The interest rate, administration, and legal fees are usually higher for this product. In addition, you will pay more interest over the lifetime of the loan because there are no normal repayments and as the interest gets added to the loan.
Interest is added to the balance of the loan for the month. The following month you will be paying interest on the new balance of your loan which could be higher if no repayments have been made.
You will also be required to obtain a Registered Valuation Report which is at your cost before funds are advanced.
During the life of your loan, the lender may require a Registered Valuation again at your cost, even if you are not requiring any more funds at that time. This is due to the fact that they are advancing funds against the equity of your home and want to ensure that there is no additional risk.
To qualify for this product, various lenders have conditions.
These might include:
- The borrower must live in the property
- You cannot rent this property out
- The property must remain in good condition, given the bank is lending against its value
On death, the loan plus interest and any legal/bank fees will be paid from the sale of the property.
This could mean you have less to leave your family or other people who will benefit from your estate.
As this is a equity product, there is a risk that if your property value comes down, you may not have the equity to borrow more.
What We Recommend
Always seek legal advice prior to final approval so you are fully aware of your legal obligations and whether this is the product for you.
Mortgage Field will ensure that you understand prior to acceptance;
• How the scheme works with the chosen lender/ bank
• Charges and conditions that come with the loan
• What we will get paid
• Interest rate - is this fixed or variable?
• Responsibilities - insurances, loan, etc...
We will not proceed with your loan application, approval, or advance, if we or you have concerns with any of the above.