The Central Bank of Ireland recently made changes to mortgage restrictions and re-opened the opportunity for older borrowers to get a Reverse Mortgage, also known as a Lifetime Loan. Since loan options are limited for older borrowers simply due to their age, a Reverse Mortgage is a loan option for older residents of Ireland that are basically cash poor but asset rich.
A Reverse Mortgage enables older consumers to meet current financial needs and prepare for their future needs by using the security in their home as collateral to borrow money. The basic criteria to be eligible for a Reverse Mortgage is to be of old age, the particular age varies between lenders, and to have property deemed valuable to lenders. If there are multiple borrowers, the age of the youngest borrower is used to determine eligibility. The borrower retains 100% ownership of their home during their lifetime, and no repayment is required until they die, vacate or sell the property.
A Reverse Mortgage seems simple but there are pros and cons. A Reverse Mortgage offers a no equity guarantee so the balance of the loan will never exceed the property value. Partial or full repayment of the loan during the term is permissible, however, penalties may apply. The interest rate is fixed but it compounds annually which means when the debt is paid, interest is paid on the interest that accrued during the term of the loan. So, if the term of the loan exceeds 15 years, the balance could potentially double in amount. If there are funds remaining at the end of the loan, the proceeds are left to the beneficiaries.
When considering a Reverse Mortgage, I recommend that you focus your research on a fully regulated lender. Also, seek legal and financial counsel to ensure a clear understanding of the full process and that you are meeting your financial needs. And as a courtesy, if you proceed with a Reverse Mortgage, inform your children/beneficiaries/heirs so they are aware of what to expect in the future.
Written by Kourtney Manley, Business Analyst at OnlineApplication