Reverse Mortgages FAQ
- What is a "Reverse Mortgage"?
- What is "equity"?
- How much equity can I release?
- Do I have to make loan repayments?
- How will I receive the funds from the loan?
- Do I still own the property?
- What happens to my home if I sell or move into long-term aged care or pass away?
- What happens if my property is sold for less than the amount I owe?
- Can I stay in my home for as long as I want?
- Can I apply for this loan if I still have a mortgage?
- Will I have to produce any proof of income to be assessed for a Reverse Mortgage?
- How is the Reverse Mortgage repaid?
- What happens if my property is sold for more than the amount I owe?
- How can I ensure there will be an inheritance for my beneficiaries?
- What happens if interest rates change?
- How old do I have to be to qualify for a Reverse Mortgage?
- What does the Council of the Ageing have to say about this kind of loan?
- What is the Protected Equity Option (PEO)?
- Could I end up owing more than my home is worth?
- What is the annual interest rate of a Reverse Mortgage?
- How can I ensure there will be an inheritance for my beneficiaries?
- How do I know if am eligible for a Reverse Mortgage?
A Reverse Mortgage is different to a standard loan in that you do not have to make repayments on this type of loan. Therefore unlike a standard mortgage where the loan balance reduces over time, the interest due on a Reverse Mortgage is added to the loan. This is called Interest capitalisation which results in the loan balance going up.
A "Reverse Mortgage" loan is aimed at retired people who own their own home but have little cash to live on. This style of loan allows the cash-poor, asset-rich to tap into the value of their property without having to sell it. The loan is eventually repaid together with all the interest, fees and charges out of the estate on the borrower's death or when the borrower decides to move out of the property.
Equity is the difference between what your house is worth and what you owe on it. If your property is worth $400,000 and you owe $100,000, then you have $300,000 in equity. When you borrow against your home you are said to be "releasing equity".
How much equity can I release?
The amount of equity that you can release depends upon your age and the value of your property. In general, the older you are the more you can borrow. The funds advanced are likely to be between 11% and 45% of the value of your property. See our Loan Amounts table to see how much you could borrow.
Do I have to make loan repayments?
You are not required to make any repayments whilst you are still living in your home as all interest and fees are added to your loan. This is also referred to as Interest Capitalisation.
How will I receive the funds from the loan?
You will receive the funds in a single lump sum at settlement.
Yes, you retain full ownership and any increase in your property value until it is sold.
What happens to my home if I sell or move into long-term aged care or pass away?
In the event of you both or the remaining Borrower moving into long-term aged care or passing away, the lender will work with you or your Executor to sell your property, which would normally be within six months.
What happens if my property is sold for less than the amount I owe?
Some lenders provide a ‘No Negative Equity Guarantee’, which means you will never owe more than the value of your property and you will never be asked to sell the property at any time, provided the Terms and Conditions of the Reverse Mortgage have been met. You or your estate will not be asked to make up the difference.
Can I stay in my home for as long as I want?
With a Reverse Mortgage you can stay in your home for as long as you want.
Can I apply for this loan if I still have a mortgage?
You may apply for a Reverse Mortgage if you still have a mortgage secured on your home. However, you will be required to repay your current mortgage in full from the proceeds of this Reverse Mortgage.
Will I have to produce any proof of income to be assessed for a Reverse Mortgage?
No, you will not be required to produce any bank statements or proof of income. Unlike a traditional mortgage, you don't need an income to apply as there are no monthly repayments.
Will my government income support be affected if I take out this loan?
If you are receiving any Government Income Support, we strongly recommend you contact a Centrelink Financial Information Services (FIS) Officer to assess any impact an Reverse Mortgage may have on your entitlements. A FIS officer can be contacted on 13 23 00.
How is the Reverse Mortgage repaid?
Unlike traditional loans and mortgages there is no fixed repayment date. The loan only becomes repayable when one of the following occurs: 1. You sell your home or investment property; or 2. You have both permanently vacated your home or moved into long-term aged care; or 3. You have both passed away.
What happens if my property is sold for more than the amount I owe?
All money available after the sale of your property and the repayment of the loan naturally goes to you or your estate. The Reverse Mortgage, interest, fees and costs are deducted from the sale proceeds.
How can I ensure there will be an inheritance for my beneficiaries?
Through our ‘Protected Equity Option’ you can choose to protect a proportion of your property’s future value. That way, you have a guaranteed proportion of the sale proceeds set aside for you or your beneficiaries, no matter what the final loan balance is or subsequent movement, in the value of your property.
What happens if interest rates change?
The interest rate can be fixed for the life of the loan regardless of interest rate movements.
How old do I have to be to qualify for a Reverse Mortgage?
The youngest borrower for the loan needs to be at least 60 years of age. The older you are, the more you can borrow.
What does the Council of the Ageing have to say about this kind of loan?
The Council on the Ageing (COTA) has been active in lobbying for more providers to enter the market to address the problem of under-funded retirees and the Federal Government reported in its Intergenerational Report on the challenges of an ageing population and the burden this could place on future taxpayers.
What is the Protected Equity Option (PEO)?
Currently only one Reverse Mortgage lender offers this option. Be selecting this option you can choose to protect up to 20% of the value of your property at no additional cost. As an example, if your home was worth $500,000 and you chose to protect 20% of the equity, instead of being able to borrow 25% of the $500,000 value of your property (depending on your age), you would instead be able to borrow only 25% of $400,000. By doing so, you know you will have at least 20% of the future value of your property available when this loan is fully repaid. You might do this to leave an inheritance to your beneficiaries, or to leave money for potential future medical or retirement care expenses.
Could I end up owing more than my home is worth?
A common concern of people considering a reverse mortgage is that the loan could increase to be more than the value of the property. The lenders who offer Reverse Mortgages structure these loans to make that outcome very unlikely - it is definitely not in the lender's interest for this to occur. According to Residex, over the past 25 years, metropolitan Australian homes have increased in value by an average 6% per annum. Because you only borrow a small percentage of the value of your home in a Reverse Mortgage.
What is the annual interest rate of a Reverse Mortgage?
Interest rates vary between different lenders. Most Reverse Mortgages are between 0.5% to 1% above the home loan rates available for standard variable home loans. Fixed rates are available for the life of the loan around 2% above the standard variable rates of most banks.
How can I ensure there will be an inheritance for my beneficiaries?
One lender offers a Protected Equity Option allowing you to protect a portion of the value of the property. In this way you can ensure that up to 20% of the future value of your property is protected.
How do I know if am eligible for a Reverse Mortgage?
To be eligible for a Reverse Mortgage you must be able to answer yes to the below questions:
- Are you and your spouse over 60 (or just you if you are the sole owner of the property)?
- Do you own your own home?
- Are you an Australian resident?
To find out more, just call us on 1300 732 630 (this is a Local Call from anywhere in Australia) or complete our online inquiry form and we will call you back.
