Reverse Mortgages Unlock wealth in home after retirement

A reverse mortgage is a type of loan that allows you to borrow money using the equity in your home as security. The loan can be taken as a lump sum, a regular income stream, a line of credit or a combination of these options.

Interest is charged like any other loan, except you don't have to make repayments while you live in your home - the interest compounds over time and is added to your loan balance. You remain the owner of your house and can stay in it for as long as you want. You must repay the loan in full (including interest and fees) when you sell or move out of your home or, in most cases, if you move into aged care, or die.

While no income is required to qualify, credit providers are required by law to lend you money responsibly, so not everyone will be able to obtain this type of loan. The older you are, the more you can borrow. Different lenders may have different policies about how much they will let you borrow. As a general guide, if you are 60, the maximum amount you can borrow is likely to be 15-20% of the value of your home. You can usually add 1% for each year older than 60. That means if you are 70, the maximum amount you could borrow would be about 25-30%.

The minimum amount you can borrow may depend on the provider; it could be as low as $10,000. Keep in mind that if you borrow the maximum amount now, you may not have access to any more money later.

On 18 September 2012, the Government introduced statutory 'negative equity protection' on all new reverse mortgage contracts. This means you cannot end up owing the lender more than your home is worth (the market value or equity).

When the loan contract ends and your home is sold, the lender will receive the proceeds of the sale and you cannot be held liable for any debt in excess of this (except in certain circumstances such as fraud or misrepresentation). Of course, where your home sells for more than the amount owed to the lender, you or your estate will receive the extra funds.

Features of this product are -

  • Loan type – Variable
  • Total lender setup costs - $495
  • Loan drawdown – Lump sum or regular payments
  • Rate – 6.20%
  • Comparison rate 6.22%
  • RFS Finance & RFS Wealth Creation fee for advice fees apply
  • RFS Finance Australian Credit Licence 388022
  • scarlton@rfsfinance.com.au