A type of mortgage in which a homeowner can borrow money against the value their home. No repayment of the mortgage (principal or interest) is required until the borrower dies or the home is sold. After accounting for the initial mortgage amount, the rate at which interest accrues, the length of the loan and rate of home price appreciation, the transaction is structured so that the loan amount will not exceed the value of the home over the life of the loan.
Many lenders offer reduced interest rates for a limited time at the beginning of your loan. Also, known as a ‘honeymoon rate’, the low interest rate generally applies to the first 6 to 12 months of the loan. The interest rates can be fixed or capped. The advantage is the rates can be lower than the standard variable rate, however, you should be aware that there is generally a catch with introductory rates. Usually after the end of the introductory period, when the rate returns to a variable rate, that rate can be higher than the normal variable rate.