Reverse mortgages have become much more popular in recent years, with the total money released through them doubling between 2008 and 2017. Many people are using the process as a means of freeing up equity after retirement. This post will run through exactly what reverse mortgages are, how they work, and how they can be useful.
What They Are
So, what is a reverse mortgage? It might seem like a new and confusing term for you, but they are really quite simple in reality. It is essentially a loan that, like a traditional mortgage, will allow a homeowner to borrow money and use their property as collateral for the loan. The loans are generally available to those over the age of 60 who own their homes outright, and they allow the homeowner to withdraw a portion of this equity in the form of tax-free income. This will enable people to withdraw, and spend, some of their wealth that would otherwise be unavailable and tied up in property. However, unlike a regular mortgage, you aren’t actually required to repay the loan monthly whilst still living in the property, instead beginning repayments only when you move out. This can allow people to rely on the profit made from selling the property to repay to money in one lump sum, altogether avoiding the concept of monthly repayments.
Spending The Money On Home Improvements
One of the most popular reasons people take out a reverse mortgage loan is to fund home improvements and renovations without having to dip into their retirement fund. In this way, people borrow the money needed to complete the refurbishments and essentially pay it back with the profit made from selling the property when they eventually decide to sell it. This is becoming much more common as an alternative to purchasing a new property at retirement age. Therefore, many people use the money to get started on those home improvements they’ve always wanted but never quite got round to doing during their working years, such as open-plan extensions or putting in a pool for the whole family to enjoy.
A Way To Increase Your Monthly Income
Alternatively, if you’ve recently retired and are starting to notice that your pension pot is going down at a faster rate than you anticipated it would, then a reverse mortgage could be a great option. The process can, in certain circumstances, often be a much safer and more regulated alternative to high-interest forms of credit and loans. There is even the option to receive the money from your reverse loan in regular instalments as a means of increasing your monthly spending options. Through doing so, many people are afforded a level of financial security and freedom that their pension alone would not allow.
Overall, reverse mortgages can be a great way to free up equity without going down the route of high-interest loans. Whether it’s funding property developments and repairs or subsidizing your pension in order to provide a steady income, you could benefit from one today.
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