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Reverse Mortgage Option Delights Ageing Population

reverse mortgageReverse mortgage has come quite handy for Australian investors (especially the aged ones) as a technique of releasing equity in homes. When people keep paying their mortgage in time, they begin to own a part of their homes. The more mortgage payments, the higher the equity, and it is this particular facet of loan arrangement that is being used by the reverse mortgage principle to benefit investors and owner-occupiers.

Reverse mortgage principle

The reverse mortgage options were first proposed in order to put an effective seal on the wealth otherwise forsaken by the retirees. While $2.9 billion (loan in reverse mortgage) out of $1.3 trillion (total loan) is still not a figure you can brag about,  it brings hope that we are going in the right direction, effectively bringing a lot of cheer to the aged population as well.

How does it work?

Through reverse mortgage, home owners can use a lump sum or a proposed annuity by collaterising their home. The best part about reverse mortgage is that it allows home owners to live in the homes proposed for the ‘reverse’ deal and hence takes out the emotional aspect from the equation. Home owners (and I reiterate how it can be a boon for the elderly) can have the homes sold off past their demise. In addition, the reverse mortgage facility can be used for the purpose of meeting aged care and accommodation bonds.

Shot in the arm for the aged

The aged population can try a beautiful alternative wherein they go for selling their home and free the equity available and use it while downsizing to a home of their needs. Part of the freed cash can then help fund a monthly subsistence income or an annuity.

Are lenders at risk?

While there isn’t any no-negative-equity guarantee offered by the Australian government; something which is offered by the Australian government, the lenders can still be potentially indemnified against reverse mortgage defaults through implementation of other ideas (risk tests and securitisation tests).