Parents are in their 70’s and have been given advice about using their home to borrow money. What’s the difference between a reverse mortgage and an equity release loan?

Hi Peter,
Great question with a fairly simple answer.

A reverse mortgage is a loan that does not require any repayments as they are capitalised (added) to the loan balance. When the property is finally sold the total loan is paid out and the balance returned to the owners or their estate. Key point being that the amount you can borrow will be less as the lender needs to be sure when the property is sold there will be sufficient funds to clear the debt. Importantly the borrowers do not need to show any income to repay the debt

Equity release loans on the other hand are just a normal home loans that are taking advantage of the equity in your property. As a result you will need to make regular payments and be able to demonstrate to the lender that you can afford to make them. This may be possible if your parents are self funded retires but if they have limited income it would be difficult to obtain finance.

hope this helps
Regards Awesome Albert

Agree with Peter - A lender would need to see income to service the loan and an exit plan if a regular loan. Many times with people our parents ages, this can be via super income or lump sum.

Reverse mortgage allows a retired person to fund their life style from their home.

With a reverse mortgage, the maximum amount you can borrow typically starts at about 15% of the value of your home for those aged 60, up to 45% for a customer aged 90.

You can read more or contact myself or a qualified reverse mortgage broker .. http://www.sequal.com.au/

https://s3-ap-southeast-2.amazonaws.com/sai-answer/answers/58995551e216c.m4a

Hi Peter, you'll probably find that a reverse mortgage starts with a lower LVR, ie. say 50% of the house value or a maximum amount & interest can capitalise, ie. add to the loan, whereas an equity loan would be at closer to standard LVRs, ie. 80% & they will need to cover the interest monthly. I'd suggest the debt servicing may be treated differently as well & I can't be sure but you might find that the reverse mortgage interest rate is higher. Cheers

Peter,
Albert has given an outline of the difference between the two loan types.
With Reverse mortgages, there a number of variants that are available to home owners, based on their specific needs.
Your parents, being aged in their 70s would be able to borrow between 26% - 34% of the value of their home under a reverse mortgage structure.
This could be taken as a lump sum, or by periodic amounts as needed. Interest is charged on the funds as they are taken, and as has been pointed out, gets added to the loan balance.
The interest rate on a reverse mortgage is a bit higher than a traditional loan, as there are no regular repayments (unlike a normal home loan).
Lenders will however allow borrowers to make repayments if they so wish.