Once you’ve paid off your mortgage, you’re theoretically home free – and your monthly outgoings are likely to be significantly reduced (so you can quit worrying about missing payments). In fact, you now have a major asset on your hands. However, being able to access that equity is extremely useful for many people – and that’s where a reverse mortgage can come in useful.
A reverse mortgage is effectively a loan that allows you to turn the value locked up in your home into money in the bank. To be eligible you need to be 62 years old or older, and you can only take out a reverse mortgage on your primary residence.
Depending on what you select, you can take monthly payments or receive a single payment (and all payments are tax-free, though interest fees will apply when the loan is repaid). The amount that is loaned is typically limited to around 60% of the value of the property.
This amount then becomes repayable if you move home or on the event of your death, at which point the property can be sold. If the property is sold after you have passed away, the profit from the sale, after the loan has been repaid, will pass to your heirs. If the property sells for less than the value of the reverse mortgage, however, the loan is nevertheless cleared – so no one will be hit by a drop in property prices.
In the meantime, you can use the payment/s from your reverse mortgage for whatever you need, from living costs to medical bills. If you still have a mortgage, you can even take out a reverse mortgage to help ease your finances or you could use it to pay off a high-interest credit card or medical bills (though doing so may take a significant cut out of the equity that you are left with in your home).