Reverse mortgage

Reverse mortgages – What are they and how do reverse mortgages work?

Many people ask us for information on reverse mortgage loans. These enquiries are primarily focused on clarifying the differences between a reverse mortgage and a lifetime mortgage. They both refer to the same thing.

This guide will help you understand what a reverse mortgage is and dispel some myths.

After you have read this information, if you think a reverse mortgage loan may be right for you, please send us an enquiry. We will contact you to arrange for a reverse-mortgage expert to meet with you.

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What is a reverse loan?

A reverse mortgage is a term that describes what is commonly called a lifetime loan. It is more commonly used internationally in countries like the USA, Canada, and Australia.

Reverse mortgages are defined by the fact that interest can roll up on top of the original capital borrowed. The total amount must be repaid at an unknown point in the future. This is unlike conventional mortgages, which require regular payments to reduce the outstanding balance over a predetermined time.

Reverse mortgages explained:

Reverse mortgages allow you to access a portion of the equity release loan. Instead of making regular monthly mortgage payments, interest is added to the amount borrowed. Your property acts as the security.

There is no pre-agreed term, unlike traditional mortgages. All interest accrued and the original capital borrowed must be repaid at death. In the case of joint applicants, this would be upon the death or transfer into a care facility.

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Are reverse mortgages for pensioners?

Reverse mortgages are for those approaching retirement or who may be nearing it. They are usually accessible to anyone 55 and over. You can use the money to buy holidays, home improvements, or medical care.

Reverse mortgages can be taken out on either a joint or sole ownership basis. A reverse mortgage can be taken out on a joint ownership basis for married couples. The funds are not required to be repaid until the death of the last surviving spouse.

What is a reverse mortgage?

Reverse mortgages allow you to get some of the home equity in your UK home. You don’t need to make regular monthly payments as your home is used as security by the lender for your mortgage. All interest earned during the term will be added to your outstanding loan balance.

There is no risk of repossession, eviction or negative equity as long as your lender is a member of the UK Equity Release Council.

You can get the money you borrowed in one of these two ways:

• One lump sum payment exempt from tax
• Drawdown facility

Lenders offer the option of a lump sum that is tax-free for the entire amount you want to borrow. Some lenders allow you to borrow a smaller amount at the beginning and then withdraw the rest as needed.

If you are looking to increase your retirement income by using reverse mortgage money, a drawdown facility can be very useful.

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What happens to a reverse mortgage if the owner is unable to pay?

Reverse mortgages are not subject to a fixed repayment timeframe, unlike traditional mortgages. Reverse mortgages are only viable if one of these two events occurs:

• When the borrower dies
• You may need to move from your primary residence to a long-term care facility.

Your debt must be paid in full with the remaining equity from the property sales returned to you. These events are determined based on the circumstances of the last remaining applicant for a joint mortgage.

The lender will then look to sell the property to recover their debts. To clear the debt, however, the lender does not have to sell your property. This option is only available if you have sufficient funds to repay the lender.

Who is eligible to receive a reverse mortgage?

Reverse mortgages are usually aimed at people who are nearing or have reached retirement.

What are the requirements for a reverse mortgage?

Many people ask us “Are you eligible for a reverse mortgage?”. In the UK, reverse mortgages are available to any above 55 who is the owner of their primary residence and has been living in the country for at most six months.

The age limit for joint applications is 55. This applies to the younger applicant.

Is there a maximum age limit for reverse mortgage borrowers

Lenders don’t generally apply a maximum age to the end of the term. Therefore, a reverse mortgage is open until the applicant dies or, in the case of joint reverse mortgages, the last living applicant, or enters long-term care.

Some lenders may place a maximum age on applicants and want to ensure that they are able to make a decision to lend money at this time in their lives. Many lenders will allow applicants to borrow up to 85 years old, while others may go as high as 95.

Can I get a mortgage reversed at 50?

Most reverse mortgages generally require that a reverse mortgage borrower be at least 55 years old to qualify. This will vary from one lender to the next. Some lenders will require that you are at least 60 years old to apply for reverse mortgages. However, some lenders may allow seniors as young as 62 or 65 to be eligible.

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What is the maximum amount I can borrow to get a reverse mortgage?

Conventional mortgages have a maximum loan limit that is determined by the lender’s affordability criteria. Reverse mortgage borrowers allow you to borrow as much as you want, depending on your health, age, and property value.

You can borrow more if you’re older than you are. Therefore, a 78-year-old applicant will be able to lend more than a 59-year-old. As with pension annuities and other forms of annuities, a person’s perceived mortality will affect how much a lender will let them borrow.

What equity is required to get a reverse mortgage?

Lenders will require that any current loan balance has been paid off before they will approve a reverse mortgage. LTV (loan to value) will vary from one lender to the next. LTV (loan to value) will vary from lender to lender depending on the applicant’s age and health. Some lenders will offer 50%, while others will offer 55%.

As mentioned in the previous section, a reverse mortgage will allow you to borrow as much as you can. However, the LTV of a reverse loan is determined by your age and your health.

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Do you have any other requirements for applying for a reverse loan?

To determine whether your property is a suitable asset to sell at a later date, all lenders will require a thorough valuation. A health assessment may also be required by some applicants.

LTVs may be increased by some lenders if applicants have a reduced life expectancy due to certain conditions.

What is a reverse mortgage calculator? How does it work?

A reverse mortgage calculator is a tool that advisors or lenders can use to determine how much equity you might be able to release from your primary residence based on the value and age of your property.

While every lender will have their own calculator, based on their individual requirements, mortgage providers can also use them.

Reverse mortgage calculators are available on many UK lenders’ and other financial websites. However, they only provide a rough estimate of how much you can borrow and what rates you will be eligible for.

To get a better understanding of reverse mortgage options available to you, submit an enquiry here. The advisors that we work with will calculate the numbers keeping in mind your specific needs and circumstances.

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What are the main benefits and drawbacks of a reverse loan?

A reverse mortgage can be a great way to get the money you don’t own but allow you to access a line of credit.

When weighing the pros and cons of reverse mortgages as well as other options, your personal perspective and circumstances will determine whether or not it is a good idea.

Reverse mortgage vs. selling your house

You could also sell your home and purchase a smaller one to free up money. The need to raise funds might not be the same as the desire to downsize. A reverse mortgage might be the best option for you.

Reverse mortgages: The risks

Reverse mortgages have a few drawbacks. They can lead to high costs and the loss of benefits that are means-tested. You should consider how an increase in cash in your bank account could affect any benefits you claim.

Reverse mortgages pose another risk. If the interest accumulates over a long period of time, there may not be any equity left in the property that was intended for your family to inherit the property when you pass away.

What are the expenses associated with a reverse mortgage

Reverse mortgages are not always affordable. The cost of reverse mortgages will vary from one lender to another. It also depends on the level and type of assistance that you need. These fees and costs can include:

• Broker/advisor fees
• Legal costs
• Valuation of property
• Arrangement fees
• Completion fees

Many people would rather have an expert guide their decision-making process when weighing the pros and cons of reverse mortgage proceeds. Send us an enquiry and we will contact you to discuss your options.

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What is the current interest rate for reverse mortgages

While interest rates can be a significant factor in choosing the best conventional mortgages for you, comparing reverse mortgage interest rate comparisons is secondary to finding a provider that meets your needs.

The amount of interest you have to repay is determined by how long you live. Therefore, factors like whether you prefer to make voluntary payments or use a drawdown option over a lump sum will impact the interest rate.

What is the best way to compare reverse mortgages?

All rates are subject to changes, so please get in touch with us to have one of our expert advisors speak with you to compare the best reverse mortgage interest rates currently available.

 

Can I purchase a house with a reverse mortgage?

Yes, it’s possible. A reverse mortgage is traditionally used to unlock equity in your home. Once the funds are transferred to you, there are no restrictions as to what you can do.

Although buying a house with a reverse mortgage might not be an option to use your equity from your primary residence, you can still use the funds to finance the purchase.

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Who are the best reverse mortgage lenders?

Banks, building societies, and other providers that specialise in reverse mortgages can offer them. It can be difficult to find the right lender for your needs. We can help you.

Send us an enquiry and we will get in touch with a specialist in reverse mortgages to provide you with more information about the main lenders.

How to get a Reverse Mortgage

A whole-of-market broker is the best way to get started with your reverse mortgage application.

Our advisors have access to all the markets and can help you find the best reverse mortgage lender based on your circumstances and needs.

Reverse mortgage brokers are experts.

We can provide you with a top-notch service that is tailored to your specific needs. We also have access to the most knowledgeable brokers in the industry.

• Access to the entire market
• Reverse mortgage lenders should be able to establish good relationships
• Are OMA-accredited advisors
• Can provide bespoke advice regarding reverse mortgages
• You have completed the 12-module LIBF-accredited training course

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Talk to a reverse mortgage expert

We are available to answer your questions or to provide advice free of charge. We can discuss mortgage insurance premiums, types of reverse mortgages and a home equity conversion mortgage.

Relax and let us find the broker who is best suited for your situation. There is no charge and absolutely no obligation to improve your credit rating.

FAQ

Can I reverse mortgage my house?

Yes, you can. Yes, if you choose an Equity Release Council lender, all reverse mortgages must be transferable between properties.

Is it possible to obtain a reverse mortgage in as little as 30 days?

The timelines and processes of each lender are different, but generally, a reverse mortgage will take between 30-45 working days from the moment an application is submitted to the underwriting stage and completion.

Can reverse mortgages be refinanced?

Yes. Refinance your reverse mortgage is a good option if you feel that you can get better terms from either your existing lender or another provider. These may include lower interest rates and a higher loan-to-value (LTV), which could allow the homeowner to release more equity.

Get in touch to learn more about how to move your reverse mortgage to another lender.

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Is it possible to get a reverse mortgage if you have bad credit?

Poor credit history doesn’t normally have an effect on reverse mortgage applications because there’s no requirement to evaluate affordability for regular payments.

The applicant must still declare the information. This could impact the interest rate offered to them by lenders. Lenders may ask for any outstanding debts to be cleared before they grant approval.

Is it possible to get out of a reverse loan early?

Although it is possible, most lenders will charge you a substantial early-repayment fee if you choose to pay the debt off before you die or move into a care facility. These fees can be prohibitive.

Lenders that are members of the Equity Release Council may offer a special feature called ‘downsizing coverage’. This allows you to downsize your home and pay off your mortgage debt sooner than usual. This is possible without any early repayment fees.

Contact us today for a reverse mortgage loan from the best lenders

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