Living comfortably in retirement
Now becoming more popular, these loans are designed for the ageing population who use the equity in their property to raise cash for any worthwhile purpose, for example, to support retirement income, pay out existing mortgages or other debt, or to fund accommodation deposits for aged care facilities.
In the past, there was often no alternative but to sell and downsize. However, these loans offer another option particularly for those seniors who have significant untapped wealth tied up in the value of their home. With residential property being the largest asset class in Australia, and with a high proportion of Australian seniors owning their own homes, Reverse Mortgages – also called ‘Home Equity Release’ – have become widely recognised and considered when comparing the costs of downsizing. Like traditional mortgages, interest is charged to the loan account each month but payment of the loan is deferred until the property is sold, the borrowers no longer live in the home or when all borrowers pass away.
Reverse Mortgages are provided by at least 8 lenders in Australia, some also offering Aged Care finance options. These products make possible a more comfortable retirement than can be afforded on the age pension alone and provide a buffer for unanticipated expenditure. The loan can be taken as a lump sum, an income stream, a line of credit or a combination of these.
For those retirees who stop working before they have extinguished housing debt, releasing home equity could make the difference between being able to stay in the home or, having to sell it to extinguish the debt.
All Reverse Mortgages written in Australia today must include a “no negative equity guarantee” . This means a borrower cannot owe the lender more than the home is worth.
Borrowers are also advised to discuss the proposed borrowing arrangements with their family and will also be required to get financial advice before proceeding. And if in receipt of a Centrelink Aged Pension, or intending to receive a pension, advice should first be obtained from a Financial Information Services officer at Centrelink.
It is important to understand the future debt of this type of loan – try the ASIC Reverse Mortgage Calculator.
Download a copy of our Reverse Mortgage Fact Sheet here.