A reverse mortgage allows you to borrow money against your home, without having to make regular repayments. Reverse mortgages have been promoted as a means of giving older home-owners access to extra cash. The amount of money borrowed and the interest accrued over the term of the loan are payable when the property is sold or when the last co-borrower moves out or dies. This type of loan can increase financial flexibility considerably but can also have important long-term effects on future choices.

Reverse Mortgages allow the 'cash poor, asset rich' to create a cash flow out of the equity built up in their home, without having to sell it. The beauty of the arrangement is that you can generate money to live on and still remain in your house.

Unlike a normal loan, you don't have to make any repayments until you sell, move out of the home or die. The total amount you owe must then be paid back to the bank, usually from the sale of the house. Your debt will be considerably higher than the original amount you borrowed, as each year the fees and interest are added to the loan.

If you are a joint owner of the house, the loan will be in both names and will continue as long as one owner lives in the house.

The amount you can borrow is calculated on your age and the value of your home. These loans are intended to allow some residual value in the property at the termination of the loan. However, this is dependent on a number of factors, including the number of years the loan remains in force, the amount you borrowed and the growth in value of your home.

The lender may periodically re-assess your home to ensure that its condition has not deteriorated and that the loan has not exceeded the value of the property. You will be kept up to date with the state of your loan via regular statements.

While historical data and trends indicate that your property is likely to continue increasing in value for the life of your loan, this is not a certainty. Nor are you likely to be able to predict how long you will live in your home. There is a possibility that the loan could eventually equal or exceed its value. If this happens, the lender may then ask you to commence repayment.

Advantages

(i) You can continue to live in your own home and have cash for a worthwhile purpose such as repairs to the house, a new car, a holiday or as a supplement to your income.

(ii) You don't need to make any repayments on the loan while you live there.

(iii) Although the loan is usually taken as a lump sum, some lenders offer regular payments or a combination of both.

(iv) Lenders will protect your home