Home Equity or Advance Loans are Reverse Mortgages to give you cash with no repayments using equity in your home
It has often been said that most of us "save" more equity in our homes than we do in savings accounts. This is due to 2 things, firstly our desire to pay off our mortgage and secondly the ongoing capital gain in property values. Many times I have told the story of buying my first home in Whangarei for $47,500 in 1981 and now it is worth say $300,000!
The age that you can apply is usually between 60 and 65 and you are often on a lower income or retired.
So how does a Home Equity Reverse Mortgage work?
Quite simply you can access cash up to an agreed amount based on your age, this amount is made available to you and you do not have to make repayments! What you must understand that there is no "free lunch" so you are starting to erode equity in your home as the loan increases as interest is added each month until the loan is repaid through sale of home, or a lump sum of cash that may become available or you pass away.
As an example, if your home was worth $500,000 you may be able to access say $40,000. The assumptions are then made that your home will appreciate at say 3% and your loan will increase at say 9%. The 3% on the larger amount will be more than 9% on your loan. The dangers are that capital gain reduces or falls and interest rates rise. This is where it is important that you have independent advice from your trusted solicitor. You should also discuss this with family as they may have other options to help you, other than you mortgaging your home with an ever increasing debt.
Whilst it is important you understand the negatives of a Reverse Mortgage you may consider the benefits outweigh these.
Common reasons you may look at using the equity in your home are:
What to look out for:
Make sure that the loan you are required to repay can never exceed the property value at time of sale.
Make sure that you are never required to make repayments unless you wish to.
Make sure that you and your partner can stay in the home as long as you choose to.
If you are interested in finding out more on how a Home Equity or Advance Loan may help you we are able to meet up and discuss the options for a Reverse Mortgage. We encourage you not to rush into this and after our meeting we will always recommend that you talk with your family and solicitor.
Contact us for more information
or Freephone 0800 178 726