Reverse mortgages – are they for you?

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Your home is generally your most valuable asset. It is wonderful to have the security of living in your own home, and many of us have become enormously ‘asset rich’ as our homes have increased in value.

This increase is only on paper in reality until the property is sold, leaving some home owners in the vexatious position of being asset rich, but cash poor. This situation is one that can be hotly debated within couples and families as one reaches retirement age and has plans to travel, help out children or cover medical bills.

As with all financial decisions, it is vital to seek professional advice (often from several sources) and be completely comfortable with any decision you make before signing on the dotted line.

One option to remedy a cash poor situation if you are over 65, is to consider taking out a reverse mortgage on your home. A reverse mortgage will give you a cash amount in return for equity in your home. The cash amount can either be repaid over an agreed period, or taken out of your estate.

There are a number of factors to take into consideration and reverse mortgages have been the subject of some debate.

While they are a convenient way to access equity and allow you to stay in your home, a reverse mortgage will affect your estate and any inheritance you may have planned for family members and the like.

It may also be hard to calculate the amount of money you will require for long-term living costs, so beware taking out a reverse mortgage and spending the amount frivolously or swiftly.

If you are contemplating a reverse mortgage, do your research. Speak to your bank, mortgage broker, lawyer or accountant and make sure you understand the pros and cons thoroughly.