Reverse Mortgages

What is a Reverse Mortgage?

Reverse Mortgages or Equity Release loans as they are also known, cater for the more senior members of our community. The loan products are designed to allow, mainly retirees, access to funds for a multitude of purposes without the need for the borrower to make regular repayments as in the case of a traditional mortgage product. The interest and fees (if any) that are incurred by having the loan is added to the loan balance (i.e. the interest is compounded and the loan balance progressively gets larger, but in most cases, so does the value of the property being borrowed against. The loan needs to be repaid when the borrowers permanently vacates the property.

Most lenders require that the youngest borrower is over the age of 60. Funds can be drawn down as a lump sum, regular instalments or a combination of both. A must have feature of any reverse mortgage is a full no negative equity clause. This means that you or your estate will not owe more than the value of the property.

How much can I borrow?

There are two factors that determine the amount you can borrow, your age and the value of your house. Lenders allow you to borrow a proportion of the value of your property according to a sliding scale. This scale normally commences at age 60 and 15% LVR i.e. at age 60 you can borrow an amount up to 15% of the value of your house. The scale typically increases 1% for every year over 60 up to a maximum of 45% or even 50% depending on the lender. For example, at age 60 a person with a house valued at $500,000 will ordinarily be able to borrow approxiamtely $75,000.

Do I still own my home?

Yes! The title on the property does not change. Just like a conventional mortgage you are simply borrowing against your own asset and you remain the owner.

Will it affect my pension?

Possibly. Most lenders require you to get advice from Centrelink as well as obtaining independent legal advice.

To learn more contact us