Reverse Mortgages Australia

Reverse Mortgages

Reverse mortgages allow homeowners to use the equity they have built up in their homes. The concept was originally created in the USA to allow "house-rich, cash-poor" elderly or retired homeowners access to their home equity to support things like living expenses or emergency bills without having to sell their homes.

Reverse mortgages are generally available to residential property owners aged over 60. Different lenders have different age entry levels, and the percentage of equity or amount of money you can leverage depends upon your age. These mortgages allow you to release funds by using the equity in your property, and are secured by a registered first mortgage on your principal place of residence and potentially, your residential investment property, dependent upon the lender.

How do Reverse Mortgages work?

In simple terms, a reverse mortgage works like this: you own a property, valued at $400,000. You take out a reverse mortgage and borrow $100,000. Depending on the product, you can take the $100,000 as a lump sum, regular income or a combination of both. Either way, you accumulate interest on borrowings as they are drawn. You generally can't rent the property, and you remain responsible for maintenance and similar costs. If you sell, you simply discharge the mortgage in the usual way or, when you die, the lender or estate sells your home, and takes what they're owed: principal (less any repayments) plus capitalised interest.

Repayments

As noted, generally, no repayments are required on a reverse mortgage until the borrower sells the home, dies or permanently moves out, with interest payments in most cases being added to the balance. You can usually choose to make regular repayments or lump-sum repayments if you wish.

What Can You Use Funds for?

Generally the funds can be used for any worthwhile purpose and typically people are using them to fund:

• Holidays
• Purchasing motor home and travelling
• Home improvements
• Investment Opportunities
• New car
• New boat
• Emergency funding
• Support for Medical funding
• Accomodation Bonds

*Source - Bluestone Equity Release

What about eroding the equity you have in your home?

With increasing longevity, while the concept of a reverse mortgage is tempting, it is not for everyone. By law, you are protected, with borrowings limited to a small proportion of the overall value of the home, but it is important to realise that, unless the rate of growth in property values is reasonable, there is always the possibility that you may see your home equity eroded each year. All reputable lenders provide a "no negative equity guarantee" so even in a disastrous property market you will never owe more than the value of your home. In addition, at least one lender offers (free) the option of taking out a guarantee that ensures up to 25% of your equity is protected. 

Funding for Accommodation Bonds

Reverse Mortgages can be a useful way to alleviate the financial pressure of funding the Accommodation Bond rather than selling the family home.. Using a Reverse Mortgage to fund an Accommodation Bond is available to residential property owners seventy years old or over.

There may be several reasons why this solution is worth consideration, including:

• The ability to secure a place in an aged care facility of choice, rather than compromise due to lack of available funds
• Because the accommodation bond is assets test exempt, and the home remains assets test exempt (for a period time), together with any income generated from the home whilst is it exempt, Centrelink entitlements are retained for longer.
• Ownership of the home remains, with more choices as to how you deal with the home, including renting it out to generate additional income and capital growth, allowing family members to move in or simply allowing time for an appropriate time to sell.
• The choice of moving back into the home 
• The Family Home stays in the Family

"Thankyou Troy Erickson from Jason and myself for all your help and understanding. Your customer service standards are exceptional." Jennifer Sanders and Jason Sanders - VIC

Speak to a solicitor and your financial adviser

Make sure you get a solicitor to read your reverse mortgage terms and conditions and explain exactly what you're signing up for. It is highly advisable that you also seek advice from your financial planner or accountant. You need someone who understands financial matters, knows your personal needs and will put your interests ahead of anything else. Also, always check how your adviser is being paid for the advice they give you.

Speak to your children and family

After you have spoken to your solicitor, talk to your family to ensure they fully understand the implications of what you are doing as it is possible that you will have a less valuable property to leave to your children as a result of the reverse mortgage. Unless you sell your property and pay back the loan prior to your death, the beneficiaries of your Will may be left with a property that has an outstanding loan secured against it. While this is entirely your own business, it may come as a surprise to your beneficiaries if it wasn't expected.

Senior Australians Equity Release Association of Lenders (SEQUAL)

Senior Australians Equity Release Association of Lenders (SEQUAL) is a not for profit association supported by many Australia's leading providers of Equity Release products. The SEQUAL Mission is to ensure the professionalism of those who offer or distribute Equity Release products for senior Australians. SEQUAL is dedicated to assuring consumers and industry participants alike of the quality and integrity of its members, and the way members conduct their business. All members of SEQUAL have voluntarily agreed to adhere to the SEQUAL Code of Conduct.  Click here for further information about SEQUAL.

Fortus

Brokers who are members of FORTUS are obligated to maintain the highest levels of knowledge, education and qualifications regarding the equity release industry in Australia. FORTUS was formed to establish an industry and consumer benchmark for professional, reliable and consistent service levels in the senior's equity release market. All of the lenders Fortus members deal with are members of SEQUAL and offer a ˜No Negative Equity Guarantee".

X Inc specialist reverse mortgage Mortgage Broker, Vicki O'Callaghan is a founding member of FORTUS.

X Inc Reverse Mortgage Lenders

Lenders offering reverse mortgages on X Inc's panel include ABN Amro, Bluestone Equity Release, CBA, Macquarie Bank, St George, Vision Equity Living.