Future Planning with your Reverse Mortgage
31 May 2018
An important aspect when deciding to take out a reverse mortgage is thinking about future needs. As noted in a previous article from RMIT University, Australian seniors face a high longevity risk - the risk of outliving financial resources. Having consideration for what could be your most important asset, the family home, when taking a reverse mortgage is an important step in the Heartland’s application process.
How a Reverse Mortgage works
A reverse mortgage is like a normal home loan that has been designed for the needs of seniors. It allows people aged 60 and over to release home equity to live a better retirement. No regular repayments are required – the debt is repaid from the future sale of the property.
Importantly, you continue to own and live in your home for as long as you wish, continuing to enjoy the benefits of your community, social network, and family memories. You also benefit from any potential increase in the property value.
Reverse mortgage interest is calculated on the balance outstanding, and added monthly to your loan. Voluntary repayments can be made at any time, which reduces the balance and interest charged. At the end of the term of your loan, when you move permanently from your home, the total interest charged, together with the amounts drawn, will be payable.
Why think about the future?
As your home is important to the family, lifestyle, and community aspects of life, the use of its equity is just as vital to think about. If you have other assets that can be used, rather than taking out a loan which charges interest, this should be considered. Downsizing may also be an option.
See related article: Reverse mortgage vs downsizing - which is best?
Taking out a loan could reduce the funds you will have available to access, via loan or sale, from your property later. This equity may be required for:
- aged care, with a bond (refundable accommodation deposit) being payable for moving into residential care – this can be a substantial payment and the contribution required is subject to a means test;
- the ability to leaving funds in your estate to beneficiaries; and
- other future needs, such as home improvements, medical expenses, or unexpected emergencies.
Once you have considered your future needs, and current financial requirements, this means you are able to make an informed decision regarding whether to take out a reverse mortgage loan, and what that loan application will look like.
Deciding on your loan structure is a central step in your application. One of the great features of a Heartland reverse mortgage is the flexibility it offers. Multiple drawdown options and the ability to repay, in full or in part, at any time without penalty, are key features which contribute to Heartland's product winning multiple awards.
We encourage customers to only borrow what they may need. This is because interest is only charged on funds once they are accessed, and drawing all or the majority of your entitlement at the outset, or increasing the size of your loan, may reduce your ability to access more equity in the future. Alternatively, only drawing funds as you need them (rather than drawing large, unused amounts at the start), will slow the growth of the loan and provide for greater equity in the future.
Using a Projection
Another step to inform your decision to take out a loan, and make sure that you will have the money you need now and in the future, is to complete a calculation to see what equity will remain in your property in the future if you take out a reverse mortgage.
A link to ASIC's Money Smart Reverse Mortgage Calculator can be found here to complete this calculation, or one of our team can complete a tailored one for you.
If you wish to guarantee there is equity remaining in the security once your Heartland loan is repaid, Heartland offers customers the ability to protect a portion of their equity with our Equity Protection Option. You can find out more details regarding this option here.
There is planning required when taking out a reverse mortgage. Heartland understands this, and has helped more than 15,000 customers release over $750m of equity in their homes, helping them live a better retirement. If you would like to discuss your future needs further, or how a reverse mortgage could be used to help you, please don’t hesitate to contact our friendly team on 1300 889 338, [email protected], or request an information pack. We are here to help you.