The Reverse Mortgage was introduced to the market some 15 years ago. The intent of a reverse mortgage is to access equity in the family home for customers who are over the age of 60.
There are 2 types of reverse Mortgage. The first is a Loan which is less than 10% of the value of the home if the applicant is over 60 years of age. If the applicant is over 70 years of age the loan amount can increase to 14%. There is no requirement to repay the loan and if fact some lender don’t allow repayments. The interest amount is added onto the outstanding balance on a monthly basis so the amount you owe increases the longer the loan exists. Most lenders have introduced a cap on what you can owe therefore there will never be a negative equity position.
When your property is eventually sold the lender will be paid out. This may happen should you need to enter a nursing or retirement home or on your passing.
The second type of Reverse Mortgage is actually not a loan but the sale of a percentage of your home to the lender. There are no repayments and no increasing amount owed. If you sell say 19% of your home to the lender then on the sale of your property the lender receives 19% of the value of the sale price.