- A reverse mortgage lets you borrow money using your home as security, without making regular repayments
- To be eligible, typically the property needs to be an owner-occupied home, although some lenders may allow reverse mortgages on investment properties.
- Reverse mortgages are a significant financial decision, so it’s essential to seek independent financial advice and speak with a mortgage broker who understands this specialised product
Reverse mortgages can be a useful financial tool for older Australians who want to access the equity in their home without needing to sell or move.
While reverse mortgages are not suitable for everyone, they can offer flexibility and peace of mind for certain people in certain situations. These can end up being expensive and there is risk involved, so it is a good idea to understand how they work and whether they are right for you.
How does a reverse mortgage work
A reverse mortgage lets you borrow money using your home as security, without making regular repayments. Instead, the loan is repaid when you sell your home, move into aged care or pass away. Interest compounds over time, which means the debt can grow quickly.
For example, let’s say you’re 70, own your home outright and borrow $100,000 through a reverse mortgage, before passing at 80. You don’t make repayments during those 10 years, by which time your debt, due to the compound interest, has grown to $170,000. This amount would be repaid from the sale of your home.
How much can you borrow through a reverse mortgage?
Your borrowing capacity depends on your age and the value of your home. Generally, the older you are, the more you can borrow. As a rough guide, a 60-year-old might be able to access 15-20% of their home’s value, while an 80-year-old might be eligible for 35-40%.
What are the pros of a reverse mortgage?
- You can stay in your home.
- No regular repayments are required.
- You can use the money for almost any purpose.
- There are flexible payment options (lump sum, regular income stream or line of credit).
What are the cons of a reverse mortgage?
- The mortgage may affect your eligibility for government benefits.
- Interest compounds, which can significantly reduce your equity over time.
- You will have less money to leave to your beneficiaries.
- Fees and interest rates can be higher than with standard home loans.
Who’s eligible for a reverse mortgage?
You generally need to be at least 60 years old and own your home. Typically, the property needs to be an owner-occupied home, although some lenders may allow reverse mortgages on investment properties.
What can a reverse mortgage be used for?
You can use a reverse mortgage to cover a wide range of expenses, such as home renovations, medical costs, aged care fees, travel or general living expenses. However, it’s important to use the funds wisely to avoid depleting your home equity too quickly.
Seek independent financial advice
Reverse mortgages are a significant financial decision, so it’s essential to seek independent financial advice and speak with a mortgage broker who understands this specialised product. Consider how the loan may affect your long-term plans, your family and your ability to fund future care needs. A reverse mortgage can be helpful – but only if it’s the right fit for you.
