Reverse mortgages

Reverse mortgages enable you to borrow funds by getting access to equity in your property. Unlike the traditional mortgages, reverse mortgages do not require you to make any repayment until you sell your home, move permanently into aged care or pass away. Since you are deferring your repayments, the interests will accumulate and your loan balance will increase over time.
Most reverse mortgage lenders require borrowers to be at least 60 years of age. If you qualify, you are usually able to borrow between 15% and 40% of the value of your home, depending on your age. The older you are, the more money you can borrow. For couples who jointly own the home, the amount is based on the age of the younger borrower.

Advantages of Reverse mortgages

• A reverse mortgage allows you to use the value of your home to obtain cash without having the sell the home or make monthly repayments.
• As personal loans reach around 15% interest, it can often be a much more viable option for seniors wanting to live comfortably in their retirement, to take a reverse mortgage at rates around 8-9%.
• The funds you receive via a reverse mortgage are yours to use as you please. You can access the funds through lump sum, instalments, cash reserve or combination of these fund delivery channels.

Considerations – Reverse mortgages

• Unlike traditional or forward mortgages, you use your income to pay your debt to build equity. With reverse mortgage, you are taking the equity as cash so with a reverse mortgage, your debt increases and your home equity decreases.
• Reverse mortgage contracts have been known to lack transparency and could be difficult to make sense, of so it's imperative that you get independent advice from your solicitor and/or financial planner before you sign on the dotted line.
• You may also want to enlist a broker to help you navigate the complex reverse mortgage maze.
• Make sure the reverse mortgage you're taking does not affect your pension, so it needs to be structured correctly. You also need to talk to Centrelink to make sure you're not breaking any laws or compromising your pension.
• Reverse mortgages have been criticised for having higher interest rates and costs compared to the forward mortgages. Interest rates are typically higher by around half to two percent compared to the traditional mortgages.

Estimated costs:

• Start up costs: from $1,000
• Ongoing costs: from $10 account keeping fees and up to $400 for valuation
• Other costs: from $500 to cover legal and documentation cost
• Deferred establishment fees: from $0 to around $3,000

• Bluestone won the non-bank category for Best Australian Reverse Mortgage in the 2007 Your Mortgage 'Mortgage of the Year' Awards, with their 'EQUITYtap' product.

• ABN AMRO won the bank category for Best Australian Reverse Mortgage in the 2007 Your Mortgage 'Mortgage of the Year' Awards, with their 'Home Equity Access' product.