Reverse Mortgage (Senior's Loan)
A Reverse mortgage is largely that. A loan against the equity in your residential property that goes up
over time, rather than down.
This is because the interest is added onto the loan as the borrower is not expected to pay loan repayments. This
means you will be paying interest on interest. The loan amount and accummulated interest usually
gets paid when either:
- the borrower pays the loan back in full;
- the borrower refinances the loan;
- the borrower moves out of the home;
- the borrower passes away.
Examples below show the impact a reverse mortgage has on the equity of your home if the value remains the
same (graph 1) and should the value increase over time (graph 2), using a loan of $50,000 and a house value
that starts at $450,000, for illustrative purposes:
This example assumes a fixed rate of 8.5% compunded monthly with no fees applying
and no repayments being made.
Reverse Mortgages are specialised loans meant for people over 65 years, who find themselves short of ready
funds and who own a residential property.
Reverse mortgages can be used for any worthwhile purpose.
There is no need for borrowers to show income details or prove that they can pay the loan back as they do not
have to make repayments, unless they wish to.
The Lender requires the original title as it is a loan with the home used as security.
There is a law in Australia (2012) that does not allow you to owe more than your home is worth with a reverse
mortgage (negative equity).
Finance Allsorts is accredited with SEQUAL so you know that our Brokers understand Reverse Mortgages and are
following the strict rules.
A REVERSE MORTGAGE MAY NOT BE SUITABLE FOR EVERYONE. WHAT ARE THE ISSUES
TO CONSIDER IN DECIDING IF IT IS RIGHT FOR YOU?
How will the loan affect
When thinking about a
reverse mortgage, you need to consider both your current and future
needs. The more you borrow now, and
the younger you are when you borrow it, the less equity you will have in your home to pay for
your needs as you age. How might your health and living situation have changed in 10, 20 or 30 years’ time? If you use up too much of your equity
too soon, you may not be able to afford future
costs such as high medical expenses, the need to move into aged care accommodation, essential
home maintenance or the purchase of a motor vehicle.
How much will you have
You can only estimate how
much you will end up owing. The exact amount to repay will depend on how much money you borrow,
the interest rate and how long you have the loan, and the value of your home when it is
Will other people living in
your home be affected?
Generally reverse mortgages have to be repaid when you move out (for example, into
aged care) or die. If you are the homeowner and someone else is living with you, the other resident
may have to move out when the loan has to be repaid. Some reverse mortgage contracts may protect
other resident by allowing them to stay in the home. If you want this option, make sure
you discuss this with your lender before taking out a reverse
Will you be able to leave your children an inheritance?
reverse mortgage will reduce the amount of equity in your home you can leave to your children
or other beneficiaries. You may wish to discuss this with your
Are there alternatives more appropriate for you?
may be alternatives to taking out a reverse mortgage that may be more suitable for
your needs. These can include downsizing, making arrangements with other family members,
government benefits, loans (such as the pension loans scheme) using savings or selling
other assets or home reversion schemes.
Will your pension change?
reverse mortgage may affect your pension or other Government entitlements. You can
contact the Department of Human Services (Centrelink) on 132 300 to talk to a Financial
about how your pension may be affected.
Phone Finance Allsorts for any assistance with Reverse Mortgages (including obtaining a
reverse mortgage information sheet) on 1300 88 74 85 or 0403 821 024.
To find out more
about reverse mortgages, including a reverse mortgage calculator to help you work out how much equity
you may have in the future, visit the Australian
Securities and Investments Commission’s free consumer website at www.moneysmart.gov.au or call 1300 300 630.
• National Information Centre on Retirement
NICRI offers a free
independent telephone service to help consumers understand reverse mortgage products. To speak to an
information officer from NICRI call