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How can a REVERSE MORTGAGE help you enjoy your life today?

Imagine being able to unlock or withdraw some of the equity or cash from your home to spend on whatever you like, without having to sell or leave your home and without the burden of having to make loan repayments.

Sounds too good to be true? Not at all! The introduction of Reverse Mortgage products to the Australian market has provided a much needed leap of freedom toward a rewarding lifestyle for pensioners and retired persons. The concept, where by a loan is provided to retired home owners who desire a more comfortable lifestyle or need capital to fund expenses, is not original. The Reverse Mortgage arrangement was first introduced into the United Kingdom and New Zealand markets where it has been enormously successful in allowing retirees a new lease on life in terms of cash flow management and improving lifestyle quality.

The funds from a Reverse Mortgage can be paid to you via a lump sum or through regular payments or both. You will never have to make a loan repayment and you are free to spend the money as you please.

Some of the Reverse Mortgage features include:

• Usually, borrowers must be at least 60 years old.
• Borrowers can generally borrow between 10 to 45 per cent of the value of their home, depending on age.
• The interest charged is around 1 per cent higher than a standard variable home loan rate
  There is no repayment schedule and the interest is capitalised. However, most providers allow borrowers to make payments during the life of the loan to reduce the debt.
• Borrowers can take a lump sum or annuity up to their maximum loan to valuation ratio (LVR). LVR is the measure of the amount of the loan compared to the value of the property. For example, if you have borrowed $100,000 and your property is valued at $200,000, the LVR would be 50%. Some providers have the flexibility to allow borrowers to take a combination of lump sum and regular payments.
• The reverse mortgage is capped by the value of the secured property. Should the value of the loan grow to exceed the property value there is no obligation on behalf of the deceased estate, borrower etc to repay the excess portion.
• The LVR’s are typically lower and the interest rates on reverse mortgages are generally more expensive than a conventional mortgage. This is considered a funding premium or protection because the repayment of the loan is deferred.

Best of all is that the Reverse Mortgage will not affect your pensioner entitlements provided that you are not gifting the money (in excess of Centrelink guidelines) and that you spend the money within 90 days of receiving it.

The loan provider will take a mortgage over your home and charge interest to the debt but will agree to forgo repayment until you:
Sell your home
Move from your home into permanent long-term care
Or pass away, leaving your estate to pay the debt.
The debt will grow each year by the interest added to it but Don’t worry about leaving a debt to your family because most loan providers will guarantee the debt will never grow larger than the value of your home, and if it does, that’s their problem, not yours or your family’s.

Risks that immediately come to mind in relation to reverse mortgages include; the impact on social security and taxation, also the emotional minefield around estate planning and the implications for beneficiaries. Overall, reverse mortgages can be a good alternative for asset rich, cash poor retirees who understand the consequences. Therefore it is essential that you seek professional advise before deciding to proceed with a Reverse Mortgage.

If you would like to obtain more information about whether a Reverse Mortgage is a good idea in your circumstances we can put you in touch with a qualified CPA who will be able to answer your questions.


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