Reverse Mortgage
A Reverse Mortgage is a loan which allows individuals in Australia over 60 years of age to mortgage their home to access equity from their property.
Should you need to maintain your property in order to continue comfortably living there, or just need to access cash for holidays or living expenses, you will undoubtedly find that a Bank just won't lend to you (age, income streams deemed unacceptable).
The amount that can be borrowed on this type of loan is significantly less than standard home loans (maximum of around 45% of the value of the property). Repayments are not required and the interest and fees capitallise on to the loan until it is repaid. The loan becomes payable if the individuals sell the property, permanently move out, default on the loan or pass away.
The benefit is that this type of loan can assist retirees to obtain access to the equity in their homes when they may be on a reduced income. The downside is that the interest capitalises on to the loan and as such, the outstanding balance can increase significantly over time.
Family Pledge Loan
A Family Pledge loan is a loan that utilises additional security by way of a guarantee from a family member to support the loan. It is particularly useful for first home buyers who may not have sufficient deposit and their parents wish to assist them with a property purchase but don't want to be a party to the loan. The family member/s provide a guarantee to the borrower with supporting security and the guarantee is limited to a certain amount. The guarantee is only there to provide additional security, not income for servicing, and as such the borrower/s must be able to service the loan via their own income.
The benefits are that it may allow individuals to borrow an amount that they couldn't have otherwise because they didn't have sufficient deposit. It also negates the need for Lenders Mortgage Insurance (LMI) or having to prove 'genuine savings'.
The primary security is the property being purchased, which will be advanced to a maximum of 80% of it's value, the supporting security (as offered by the family member guarantor) will constitute the other 20%.
The bank will consider the release of the family guarantee once the loan is 80% or less of the primary security property value.