When you’re thinking about financing your retirement, you probably consider your pension first. After your pension, perhaps you think about generating extra income by running a small business, or renting out a room. However, if you are a homeowner, you might not have considered other ways that you can generate money from your house. You might be eligible for a reverse mortgage. A reverse mortgage is a loan where you can get cash payments based on your home equity. In many countries, reverse mortgages are only available to retirees or people of a certain age. They can be an ideal way of financing your retirement. You usually don’t pay the money back unless you sell your house and move home.
Who Can Get a Reverse Mortgage?
Eligibility for reverse mortgages depends on the country where you take out a loan. Reverse mortgage in Canada is available through private lenders and usually applies to people over 55 or 62 years of age. Meanwhile, to qualify for a reverse mortgage in Australia the borrower usually has to be over 60 or 65 years old. In the United States, the rules are clearer – the homeowner must live in the property and be at least 62 years old. There are other qualifying factors for receiving a reverse mortgage, but they will vary between countries and providers. It’s best to go straight to the source to check if you’re eligible.
How Much Can You Get?
Many reverse mortgages will offer up to 50% of the property’s value to the homeowners, depending on the country and lender. This income is not taxed in Canada, and usually is not taxable income elsewhere. Payment comes in several forms, and you can often choose how the lender pays the money to you. You might be able to get a one-off lump sum, monthly payments or a credit line.
What’s the Catch?
Of course, you don’t just get money for free. When you take out a reverse mortgage, you’re taking out a loan. Since you don’t have to pay the money back, unless you sell your house, the loan becomes due when you die. This means that your home will either go to the loan company or the heir to your estate will have to buy it back from them. If you want a friend or relative to inherit your house, a reverse mortgage probably isn’t for you.
What Can You Do With the Money?
You can do whatever you want with the money from your reverse mortgage. There aren’t any rules, which is why it’s a great way to fund your retirement. You can use it to go away, to make improvements to your house or just to keep you afloat.
If you’re thinking about taking out a reverse mortgage, do your research very thoroughly. You can even speak to a loan advisor to make sure you’re doing the right thing. Don’t rush into it; it is a loan and not free money. Look at both the pros and cons and make your decision carefully.