Reverse Mortgages - January 12th
What should you look for in a reverse mortgage? CANSTAR gives industry insights into home equity lending and case studies on the needs of retirees.– Read more
Home Loans - January 28th
A reverse mortgage is a type of equity release product (ERP). Equity release products come in two forms – credit products and debt-free products – and a reverse mortgage is a credit product. Common questions about…– Read more
In a reverse mortgage, you still own your house but the bank lends you a small portion of the house’s value money in a lump sum or income stream, using the house as security. A reverse mortgage is a credit product type of equity release product (ERP), where your loan is based on how much you own of your home (the equity).
Deloitte’s 2013 report found the main reasons why older Australians were choosing to utilise a reverse mortgage included the following:
Written by: TJ Ryan
You remain the legal owner of your home at all times, and there are several legislative protections of this right under the National Consumer Credit Protection Code 2012 (NCCP) and ASIC Regulatory Guide 209 (Credit Licensing: Responsible Lending Conduct). These regulations include the following protections for borrowers:
Reverse mortgages can have an effect on your Age Pension entitlements so if you are on the pension, you should speak with a Department of Human Services Financial Information Service officer before signing up for a reverse mortgage. You can visit an FIS officer in person at your local Centrelink office or call Centrelink on 132 300.
The repayments on a reverse mortgage are not like in a standard mortgage. In a reverse mortgage, the interest repayments just get added to the balance of the loan and you don’t need to pay the bank any money. The loan is only repaid when you sell your house, move into residential aged care, or pass away.
You can make repayments any time you want to and have enough savings to be able to, but it’s not necessary. You might make repayments if you wanted to be able to pass on a larger portion of the sale price of your house in your will.
When we rated reverse mortgages in late 2015, the interest rates on offer for reverse mortgages ranged from 6.45% to 6.75%, with an average rate of 6.60%.
There are also varying fees charged on a reverse mortgage, much as there are for a standard home loan. The average fees in 2015 were as follows:
Different providers offer varying levels of value when it comes to the features attached to their reverse mortgages. In our research ratings, CANSTAR assesses reverse mortgages for how they provide value through features including:
Mrs Amelia Birch has just celebrated her 75th birthday and has been thinking of reassessing her finances.
She had a small amount in superannuation when she and her husband retired, but after a holiday to the pyramids in Egypt she had used most of it up before turning 70, and her husband has now passed away. It occurs to Mrs Birch that she had been looking forward to making another trip to visit her daughter, who is a missionary in Peru, but on the Age Pension alone, she may not be able to afford it.
Mrs Birch does most of her banking on her home computer now that she finds it more tiring to visit a branch. She hops on the computer and uses CANSTAR’s website to research reverse mortgages and how she might be able to use some of her home equity to fund the rest of her retirement. She makes some notes, then phones her financial advisor to set up an appointment to talk over her options.
In CANSTAR’s 2016 Reverse Mortgage Award, the award winner for outstanding value was Heartland Seniors Finance. Mrs Birch asks her financial advisor about how each of these rated products might work in her personal situation.