[VIDEO] What is a Reverse Mortgage? Australian Reverse Mortgages Explained
13 September 2016
“Reverse Mortgages Explained, sponsored by Heartland Seniors Finance.”
What is a Reverse Mortgage?
- A Reverse Mortgage is like a normal home loan that’s been re-imagined for the needs of seniors
- It’s allows people aged 60 and over, to release home equity for cash
- No regular repayments are required – the debt is repaid from the future sale of the property
- And importantly, you continue to own your own home
How can a reverse mortgage help you?
Reverse Mortgage loans are very flexible. You can use the funds for any worthwhile purpose:
- Home improvements
- Travel & holidays
- To purchase a new car
- Debt consolidation
- Medical expenses & aged care
- Extra cash-flow in retirement – for bills & living costs
How does Reverse Mortgage work?
- The amount you can borrow is determined by your age and the property value. At 60, you can access just 15% but by 90 it’s possible to release 45% of the home value.
- You choose how to take the funds; either as a lump sum, cash reserve, a regular advance – or combination of all three.
- And the lender only ever takes a first mortgage; you remain the home owner.
Let’s look at an example:
Steve & Jenny are both 70 years old. They own a home worth $600,000. They use a Reverse Mortgage to borrow $60,000 as a lump sum to fund home improvements. A year later, they draw $10,000 more to upgrade their old car. Two years later they draw another $10,000 for a family holiday [with the grandkids]. And in year 4, they draw a further $10,000 for Steve’s hip operation
Assuming a 7% interest rate and 3% annual growth in house prices, here’s what happens:
- Each month the interest on the balance is ‘capitalised’ – added onto the loan
- The debt grows as interest compounds
- The higher home value also increases over time
- So after 10 years Steve & Jenny have more ‘net equity’ than they did before the loan
- In fact, they’d retain about 78% of the of the home value!
This outcome will vary from case to case. But future ‘net equity’ will always be determined by:
- » how long the reverse mortgage is in place
- » the future growth in your home value
- » the effect of interest rates over time
You can make voluntary payments whenever you wish, & like all loans a Reverse Mortgage needs to be paid back too. The amount borrowed, plus any interest and fees is repaid when you sell the property, or from the estate when the last surviving borrower passes away.
What are the benefits of Reverse Mortgage?
Reverse mortgages are increasingly popular. They offer important benefits to Australian seniors:
- Peace of mind – knowing you have access to cash
- A better lifestyle in retirement
- Less stress paying every day bills
- No need to sell or downsize - stay in your home
- The freedom to change your life, when you want
Thank for watching. You can find more information and resources at www.seniorsfinance.com.au