You may have considered applying for a reverse mortgage if you are a senior homeowner who needs extra money to pay for medical bills, renovate your home, or even help support your lifestyle. This form of borrowing helps retirees and pensioners to borrow against the equity of their home.
Read on to learn more about how to terminate a reverse mortgage if you’re having second thoughts.
What is a reverse mortgage?
A reverse mortgage is a way of borrowing money using your home as security. You take the mortgage as a lump sum amount, a line of credit, a regular income stream, or a combination of the above options.
With this type of mortgage, you won't have to worry about making ongoing payments. The repayment will only occur when you sell the house, move into aged care, or die. With a reverse mortgage, the compounded interest gets added to the amount you owe. As a result, further interest is calculated on the total amount you owe. Soon you may end up owing much more than you borrowed. That’s why it’s essential to understand all aspects of your reverse mortgage and how you can terminate it.
How much money can you get with a reverse mortgage?
The loan amount depends on your age, your property value, and the lender. According to the Responsible Lending principles of the National Consumer Credit Protection Act, eligible candidates can borrow up to a specified margin against the security of their home.
This can range anywhere between 15-20 per cent of the value of your house at the age of 60. As you grow older, your borrowing capacity will also increase by 1 per cent more per year. So, by the age of 70, you can expect 25-30 per cent and by 80 around 35-40 per cent.
How to terminate a reverse mortgage
If you change your mind and want to opt out of a reverse mortgage, you can do it within the cooling-off period. This can range anywhere between 10 and 30 days, depending on where you reside and the terms set by your lender. By stopping your reverse mortgage agreement within this period, you may get a refund for your settlement fee, interest and the standard cost of a valuation. You will have to pay your independent legal fees or financial advice and government charges, if any.
However, if you’re wondering how to terminate a reverse mortgage after the cooling period, you may have to consider repaying the entire loan balance. If you have a considerable amount to repay and you cannot arrange the funds, an option could be to sell the house and use the proceeds to pay off the reverse mortgage.
Another option that you could explore is to refinance the reverse mortgage into a conventional home loan. However, this can be tricky. Some people also ask their family to help if they can’t get a conventional loan.
Before going ahead with any of these options, it’s important to consult an expert or a lending specialist, as reverse mortgages can be complex.