It's probably a good bet you know what a mortgage is. But have you heard of a reverse mortgage? Though the name may sound made up, reverse mortgages are very real.

What is it?

A reverse mortgage lets you use your property's equity that's been building up over the years as security to borrow money. Rather than repayments, while living in your home, interest simply compounds and adds onto your loan.

Equity, for those not in the know, is the difference between the value of your property and the amount you still owe on your home loan

For example, if you first bought a house for $250,000 around 15 years ago, and now owe $50,000, you'll have $200,000 worth of equity. Your equity could be greater if house prices have risen or you've made renovations that have raised the value of your home. Reverse mortgages let you access this money to spend how you like.

Bear in mind, however, that reverse mortgages are only available for those older 60 years of age, or in some cases, 65. 

Why should I use it?

It shouldn't be too hard to think of something you'd buy if you had a spare cash injection lying around. You could spend it on a hard-earned vacation, pay for medical bills or replace the car that's been giving you grief. You could even use it to help fund your retirement.

For the more savvy, there's also the option of reusing it for property. If you're approaching retirement you could use it to downsize to a cheaper home, or you could use it to acquire an investment home loan and buy an investment property, growing your wealth further.

Is it a good idea?

While this all sounds promising, there are a number of risks involved. Interest rates on reverse mortgages are higher than the usual home loan. Before you know it, the water could begin rising and you'll find yourself neck deep in bigger debt than when you started. 

Not only that, but having a reverse mortgage could affect your pension eligibility, resulting in higher living costs.

Before making a decision on a reverse mortgage, you'll want to consider if it's the best course for you.

You can contact a Smartline Mortgage Adviser on 13 14 97 for home loan advice. Or complete our call request form and we'll call you!

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DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.