Ingrid was retired and, although she had a lovely home, she had very little income for everyday expenses.  Her friends suggested a reverse equity mortgage whereby she could borrow against the equity in her home and not be required to repay it until she passed away or moved into a rest home. 

Although these mortgages can be very useful for those who are in need of cash in their later years, here are some things to be aware of.

  • They are more expensive than ordinary mortgages.  Make sure you check all the costs involved, before entering into the arrangement.  There will be upfront costs such as valuation fees and independent legal advice.  
  • The interest rates of these loans are higher than an ordinary mortgage.  Shop around providers to get the best rate and to ensure you find a provider that has a good name and record.  Remember you are not paying the interest as you go, so it compounds and is added to the original loan amount…you pay interest on interest!  
  • The overall effect of such loans is that your equity in your home is eroded over time.  Therefore look for a provider that offers a “no negative equity” guarantee so you or your estate can never be left with a balance outstanding under the mortgage following the sale of your property.
  • This type of loan lessens the amount your beneficiaries receive under your Will, so you should make them aware of your intentions and obtain advice from your lawyer.