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What is a reverse mortgage?
A reverse mortgage allows you, once you are over 62, to tap into your home equity. It’s also called a backed Home Equity Conversion Mortgage, but it’s mostly known as a reverse mortgage. It allows you to release equity in your house without having to make monthly payments back, with the outstanding balance of whatever you take out being paid back when you pass away or go into full-time care and your house gets sold.
These kinds of mortgages are often very popular with older homeowners as you don’t have to prove any sort of financial affordability. When you retire and your income reduces, it can be hard to pass affordability checks such as the ones in place if you want to remortgage. With a reverse mortgage, it allows you to stay in your house and carry on as normal, using the equity that you’ve released to do whatever you choose with. You can also choose how you take that equity- if you want it in one lump sum to invest or to do some major home improvements that’s fine, or if you’d prefer to set up a monthly advance to top up your pension in your retirement that’s also an option. You can also look at doing both if you wanted to; you can set up whatever works best with your mortgage provider.
If you still have a mortgage on your house you can still take out a reverse mortgage, but you will need to pay off the existing mortgage with the equity that you release. It’s important to remember that whilst you don’t have to make monthly payments, you do still have to stick to the agreement that you have set up with your lender. You should also consider the implications that a reverse mortgage can have. As it changes the value of your estate, it changes what you can leave to your family in your will when you die. The house will have to be sold to pay back the reverse mortgage, so you aren’t able to leave this to your children. It can also potentially change your tax bracket and your eligibility for healthcare and support.
What about the negatives?
As with any financial decision, it’s important to know any potential issues that might arise. Because you don’t have to make any payments towards your reverse mortgage, the overall balance will build up over time as the interest increases. This doesn’t happen with interest-only loans, which are also quite a popular choice for retiring homeowners.
It can also be a negative that your house cannot be passed down to your family as an inheritance when you pass away. If your family house has sentimental value, this might put you off a reverse mortgage, but if you’re not too concerned about the sale of the house then this shouldn’t be too much of a problem.
A reverse mortgage needs to be paid back either when you sell your house, pass away, or if you go into permanent care. This can sometimes put homeowners off, as it can put more work on the family of the homeowner to get the reverse mortgage paid whilst dealing with the possible passing of their family member.
Overall, there are both positives and negatives to a reverse mortgage but knowing whether it’s the right decision for you or not is up to you to decide. If you’re not sure that a reverse mortgage is right for you and you want to know what options you have in regards to selling your house, contact us today at We Buy Any House and we can provide you with a free quote of your property.
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