
Sign up & start saving!
Get our weekly newsletter for the latest in money news, credit card offers + more ways to save
Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.
There’s no shortage of ways to fund your retirement — including accessing your savings, downsizing homes or using your pension. But would-be retirees who own their own homes have another option: reverse mortgages. Just be sure you know the risks in addition to the potential benefits.
A reverse mortgage lets you borrow against your property’s equity and spend the funds as you’d like. You repay the debt — plus interest — when you sell the property.
Before borrowing from your home’s equity, it’s critical to understand how reverse mortgages work and the costs involved.
Consider the following risks:
Reverse mortgages are complex products. Seek legal advice and speak with a financial adviser before taking out this type of loan.
Every reverse mortgage lender has a different maximum they are willing to lend. This amount can vary depending on your age and the value of your home.
Borrowing limits are typically set well below those of standard home loans, which let you borrow 80% of a property’s value or more. Most reverse mortgages are generally 45% of your equity if you’re 90 years old, and progressively lower depending on how much younger than that you are.
These limits mean when you sell your property, you could still get some of the profits back once your debt is repaid. But remember that interest charges will add up every month, increasing your debt and reducing your equity in the property. You are, however, free to make repayments toward the debt at any time. Some lenders also allow you to apply to get those repayments back if needed.
One advantage of reverse mortgages is their flexibility. You’re only charged interest on the amount of equity you access, and you can access it in different ways for different purposes.
Common ways to use a reverse mortgage include:
Note that different reverse mortgage lenders have different rules regarding how much you can borrow and how you can receive the payments.
One of the biggest benefits of a reverse mortgage is that you can stay in your home while accessing funds.
Many retirees wish to stay in their family homes rather than downsizing or moving into senior living facilities. A reverse mortgage can make this easier to achieve.
You can use the money from a reverse mortgage to pay for anything, including:
The standard way to repay a reverse mortgage is by selling your property. You receive the proceeds of the sale, minus the money you’ve borrowed against your equity. You’ll also be charged interest on the borrowed amount and you may have to pay lender fees.
But there are other repayment options as well. Some lenders offer unlimited additional repayments for reverse mortgage borrowers. This effectively allows you to repay what you’ve borrowed early, rather than waiting until you sell. This added flexibility can help reduce your overall interest costs.
A reverse mortgage can provide you with the financial flexibility you might need in your later years — and you won’t have to pay the balance back until you move out. But knowing the risks is crucial to your financial wellbeing. Compare reverse mortgages to find out how much you could qualify for.
Check out these Fundrise competitors.
Learn about what will happen to your home loan when you die and how to avoid any nasty situations with some pre-planning.
Check out our guide on the differences between mortgage brokers and bank loan officers. See which one will suit your needs.
From supply and demand through to location, facilities and planned infrastructure projects, there are plenty of factors that can influence property value.
Some lenders will approve a home loan even though you’re not receiving a permanent income. However, you’ll need to undergo some assessments.
Which is right for you?
A 101 guide covering the types of mortgage loans every homebuyer should know.
A business line of credit is a useful tool. But as a startup, you may not qualify for the best interest rates with most lenders. Explore your options — and alternatives — for flexible funding as a new business.
Here’s where to get financial help for yourself and your business if you’ve been affected by the storm in February 2021.
TLDR: Don’t panic — you won’t be forced to pay everything back at once.