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Planning Process / Reverse Mortgages

Reverse Mortgages / Equity Loans

Recently there has been much comment about the ‘savings shortfall’ that many senior Australians can expect to be faced with in their retirement.
For many seniors their savings in retirement will simply not last long enough. You probably can't take out an ordinary loan if you don't have enough income to pay it off, and you may not want to sell your home.

Equity release products (sometimes called 'home equity loans' or 'reverse equity products') could be one way around these problems because they allow you to borrow money against the value of your home while you still live there.
A lifetime mortgage is usually structured as a loan secured with a first mortgage on residential property. You can continue to enjoy the comforts of your own home without having to sell it or move

There are 2 major types of loans possible

• Reverse Mortgages allow you to borrow money against the value of your home. You usually don't have to repay the loan until you leave and move into care, sell your home, or die. Instead your debt and interest (and any fees and charges you don't pay up front) build up (or compound) over time. When the loan ends you, or your estate, must repay what's owing (usually out of the proceeds of the sale of your home).

• Home Reversion Schemes allow you to sell all or part of your home at a discounted price – usually between 35% and 60% of what your home is worth. But you have the right to keep living in your home until you die or decide you want to move.

Eligibility
You must meet the following:

• Be at least 60 years of age.
• In the case of a couple, both must be 60 years or over and both own the property.
• Be a homeowner with equity in your home. While you may qualify even if you have an outstanding mortgage, you will be required to pay out the mortgage with the funds received from the equity release loan prior to receiving the balance of the money.

Loan Amount
The amount of money that you can borrow will vary with each Lender.
The maximum amount you can borrow will usually be expressed as a Loan to Value ratio (LVR) being the available loan amount as a proportion of your property’s appraised value. The LVR usually increases with age.

Age of the youngest borrower	Maximum % that can be borrowed
60-64	15
65-69	20
70-74	25
75-79	30
80-84	35
85-89	40
90+	45

Interest Rate
As with traditional mortgages, Lenders will offer their loan with a variable rate of interest, a fixed rate of interest or a combination of both. Again, the rates and options available will vary with each Lender.

Benefits/ Issues to be considered

• Unlocking the equity in your home.
• Use of the money for what ever personal or investment purpose you wish.
• Your home is yours for life, you may not be required to live in the home.
• You may always maintain your interest in your title.
• Money can be received in a lump sum, monthly payments or both.
• Make no regular repayments.
• Choice of variable and fixed interest rate options
• Cash reserve facility.
• Negative equity guarantee

Advice

1. To ensure you get the product that is most appropriate for your needs get independent legal and financial advice.
2. Make sure you get a lawyer to read the terms and conditions and explain exactly what you're signing up for.
3. On the financial side talk to someone who understands financial matters, knows your personal needs and will put your interest ahead of anything else. Always check how your adviser is being paid for the advice they give you.
4. If you are using a mortgage broker, look for one who has received industry accreditation.
5. Consult the Centrelink Financial Information Service or the Department of Veterans Affairs to see if it may impact on your pension entitlements.
6. Talk it over with your family.