A lot of senior Australians are asset rich and cash poor. They may own their home outright, which is worth hundreds of thousands of dollars, but they don’t have enough spare cash to pay the bills and have a bit of fun.

A reverse mortgage, sometimes called a lifetime mortgage or a seniors finance equity release loan, is a loan available to seniors 63 years and older which allows them to use the equity in their home to release cash for their own use.

The loan can be taken as a lump sum, a regular income stream, a line of credit or a combination of these options. And there are no repayments.

But before you get too excited, the repayments accumulate and is made when the property is sold or out of the estate when the borrowers die. While no monthly repayments are required, voluntary payments can be made in between to lighten the load of the balance. It’s a useful option for seniors who wish to remain in their homes but need some extra cash for renovations, a new car, health expenses, whatever you wish. The bank has no say on how the money needs to be used.

Most major banks will lend anywhere from $10,000 to $250,00, depending on the age of the applicant, the value of the home, and its location. There are a few risks with the interest rates being generally higher than average home loans, and the debt can rise quickly as the interest compounds on the rising loan.

Before entering into a reverse mortgage, borrowers must first talk to Centrelink or their pension provider to ensure that the cash from the loan will not affect their benefits or income.

Potential borrowers must also watch out for is the No Negative Equity Guarantee (NNEG). Without this guarantee you run the risk of ending up owing more than your property is worth. Lenders who are members of the Senior Australians Equity Release (SEQUAL) must offer reverse mortgages that have a NNEG.

SEQUAL is an industry forum aiming to provide consumer protection and the ethical and successful operation of the Equity Release Market in Australia, and their site (sequal.com.au) has plenty of information should you be interested in a reverse mortgage.

A reverse mortgage can be a good idea. But understand what you’re getting yourself in for and the dangers of getting into a negative equity position.

Also lets your kids know as they might get a shock if they’re counting on inheriting the full value of your home. They shouldn’t worry about that because it’s not their money and it will enhance your life.