Reverse Mortgages

A reverse mortgage is like a normal home loan that has been designed for people aged 60 and over. It allows home owners to borrow against the equity in their home to live a more comfortable retirement. Supplement your retirement funds to cover day-to-day expenses, home improvements, aged care, home care, travel or any worthwhile purpose.

Key points and features

  • The loan amount depends on your age and value of property.

  • There are no income servicing requirements whatsever.

  • You are not required to make regular loan repayments.

  • Interest accumulates on the facility, charged monthly and the loan is repaid when you sell the home, move out or pass away.

  • loan purpose is flexible. You can consolidate debts, make home improvements, pay for day-to-day expenses including medical and healthcare, aged care costs, travel and car purchase.

  • No negative equity guarantee - means the amount you repay never exceeds the net sale proceeds of your home. This law protects borrowers from owing more than their home’s value, and from being liable if the property is sold for less.

  • Flexible drawdown options including an initial advance - lump sum, or regular monthly, quarterly or annual ongoing payments, or hold an approved limit in a cash reserve facility, similar to a line of credit, for future use and adhoc redraws.

  • A cash reserve feature allows you to set aside funds to draw on later if needed for emergency expenses, unplanned home repairs, healthcare, holidays or any worthwhile purpose. Importantly no interest is charged on your undrawn cash reserve facility. Interest will only be charged on what amount is redrawn and used.

  • Equity Protection Option (EPO) is available to preserve a percentage (up to 50%) of your homes value. When your loan is repaid, you or your estate is guaranteed to receive at least the chosen EPO percentage of the net sale proceeds. It will reduce the maximum amount you can initially borrow.

  • Aged Care loan option is available to fund residential aged costs such as Refundable Accommodation Deposit (RAD) and Daily Accommodation Payment (DAP) plus other associated aged care costs. This loan term is limited to 5 years or if earlier, 12 months from when the customer leaves the aged care facility or passes away.

  • Loan repayment : the total loan amount, including accumulated interest, is usually repayable when the last customer moves permanently from their home, either when the property is sold, or they move to long-term care, or they pass away.

What can you use a reverse mortgage for ?

You can use the funds for any worthwhile purpose, including

  • home improvements,

  • travel,

  • a new car, debt consolidation,

  • medical costs,

  • aged care, or living expenses.  

    You also continue to remain the owner of your home, stay there for as long as you choose, and continue to receive any increases in home value.

How does it work?

Reverse mortgage loans are very flexible. The loan proceeds can be received as

  • a lump sum - initial advance,

  • a regular advance either monthly, quarterly, or annually for up to 10 years, or

  • a cash reserve (like a ‘line of credit’), set aside funds for future needs.

    You are also able to repay your reverse mortgage partially, or in full, at any time without paying additional penalty charges, adding further flexibility.

Independent legal advice

For your protection it is a requirement that you receive independent legal advice on your loan agreement from a solicitor of your choice.

Centrelink

Under Centrelink rules, generally funds drawn from a reverse mortgage are regarded as a return of capital rather than income. It is important, that borrowers contact Centrelink to discuss the impact of taking a reverse mortgage may have on any pension or government entitlements they are currently receiving - especially if gifting family.

Loan application Process

Initial
assessment

We will meet in person or communicate via electronic video means and,

  • conduct a fact find and thorough needs analysis of your requirements and objectives including any future financial needs;

  • request you make enquiries with Centrelink about any potential impacts of a reverse mortgage on your Centrelink entitlements;

  • make an assessment to ensure your loan is not unsuitable;

  • confirm eligibility including your age, property location and value. Also confirm the loan structure; and

  • ensure you receive and understand compliance information including the Reverse Mortgage Information Statement, ASIC Moneysmart calculations, product Fee Schedule, and Product Guide.

Application

We prepare and send you an application online or hard copy with a standard checklist of supporting documents. Generally we require proof of income, eg Centrelink statement, council rates notice, photo ID, building insurance proof, current bank statements and loan statements - if paying out a debt.

Valuation

On conditional approval, an independent valuation will be ordered. On receipt of the completed valuation, we will advise you of the valuation amount and finalise the loan amount and structure.

Compliance call

The lender will complete an outbound call to ensure the loan structure and loan amount are correct and resolve any questions you have.

Approval

On formal approval, loan contracts will be issued directly to your nominated solicitor by eSign, email or post, with a duplicate copy sent to you.

Legal advice

For your protection, it is a requirement that you receive independent legal advice on your loan agreement from a solicitor of your choice.

Settlement

On receipt of the signed loan and mortgage documents with your clear property title, the lender will initiate settlement promptly within a few business days. If refinancing a lender on title, the settlement process will take longer to discharge the outgoing mortgagee.

Case Study - Reverse Mortgage

Betty and Arthur are aged 78 and 72 respectively. They live in and own a unit worth $1,000,000 in Petersham NSW and each receive the aged pension.
They are making repayments on their loans but creditcard interest is strangling their cashflow.

Requirements : They want to borrow $40,000 to repay their current home loan, pay out a $15,000 creditcard debt, $20,000 lump sum for immediate home improvements, receive a regular payment of $1,000 per month for 5 years, to supplement their retirement and hold an additional $50,000 in reserve for future contingent expenses.

What amount can be borrowed against the property ? Loan to Value = (32% based on the younger borrower) Therefore the maximum loan amount permissible = $1,000,000 X 32% = $320,000.

In this case, Arthur and Cyril could payout their home loan and creditcard, receive a $20,000 lump sum and regular payments of $1,000 per month for 5 years. ($1,000 x 12 X 5yrs = $60,000) and finally hold over $50,000 in a cash reserve facility - for emergency costs. All up total facility of $185,000 approved and summarised as

  • $40,000 - payout home loan

  • $15,000 - payout and consolidate the creditcard

  • $20,000 - lump sum now

  • $60,000 - ($1,000 per month for 5 years)

  • $50,000 - Cash reserve - set aside for unexpected bills or emergencies. (No interest is payable on this cash reserve until funds are drawn)

Total $185,000 Facility ($75,000 initially drawn with $1,000 per month supplements ongoing for 5yrs)

Important note : Clients only pay interest on the outstanding loan balance. Interest accrues daily and charged monthly. So initially they pay interest on the $75,000 drawdown, with interest gradually capitalising monthly on the loan balance and the $1,000 per month draws.

Clients can still make loan repayments to save interest costs, although repayments are not mandatory.

For an obligation free assessment please call or complete our online enquiry form.