Use your home to fund the golden years
Following the international success of "reverse" mortgages, some large South African lenders have recently introduced this concept to the local market and, in the light of the shortage of retirement accommodation, it is definitely worth consideration by homeowners of retirement age.

So says Dr Piet Botha, chairman of the Nationlink estate agency group, who explains that a reverse loan is a home loan taken against the debt free portion of the value of the home, and is useful for owners who might need money to finance an investment opportunity, a large-scale renovation project, unexpected medical costs, or simply to be financially independent.

"There are many retirees today who have been living in their current home for the past 10 or 20 years and are in fact sitting on a golden nest egg without realising it," he says.

"In view of the residential property market's performance in recent years, their homes may have doubled, tripled or even quadrupled in value, providing a large amount of equity to secure a reverse loan."

On a home that was bought 10 years ago for R250 000 and is today worth R750 000, for example, there is at least R500 000 worth of equity to secure such a loan, and the property value is likely to increase further over time.

The major advantage of a reverse loan is that the repayments are capitalised for as long as the borrower lives in the home, which must be a primary residence. Repayment of the reverse loan amount, comprising all cash advances received as well as the interest, becomes due only if they sell the home and move out.

"Alternatively the loan can be repaid by their heirs from their estate when they pass away," notes Botha.

Potential retirees who opt for a reverse loan can usually choose from three different payout options: a lump sum, a monthly income or a cash reserve that can be accessed from time to time as needed.

They can also, says Botha, expect to be screened beforehand for the lender to make certain that this is the best possible option for them. "In contrast to regular loans, however, the state of the homeowner's credit history will generally not affect their chance of obtaining the loan because the main factor is the market value of the home."

What is more, he cautions, reverse mortgages do not fall under the Financial Advisory and Intermediary Services (FAIS) Act, which means you will have no recourse if you receive flawed advice. "For this reason, it is vital that you double check any advice and make absolutely sure that your debt will never exceed the value of your home."

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