This home loan structure allows you to borrow the equity or cash in your home while you still live in the residence and retain title to the property. The most popular type of equity release is the reverse mortgage. The product is simple; a lender – often a major institution – will lend a percentage of the value of your home. It's also worth considering if you can look at a reverse mortgage as a form of superannuation or paying for retirement.
Usually the amount you can borrow depends on your age. You're charged interest on the loan, but instead of having to make regular repayments, you add the interest payments to the amount you owe to the lender. This is called “capitalizing” the interest – because it increases the capital amount that you must repay.
There are a number of ways you can repay the loan. For example, you can sell your home and use the proceeds to repay the debt. Or you can repay the debt from other sources and keep the property.
Positives of the Equity Release (Reverse Mortgage)
- You are not obliged to repay the loan at any fixed time. A lender will insist you repay the loan if you die (in this case, the responsibility falls to your estate) or if you move out of your home, for any reason.
- Suitable for retirees who own their own home but don't have enough cash to meet living expenses.
- Also suitable for baby boomers seeking to retire in the next five years;
- Or for younger borrowers looking to upgrade their properties.
