As part of the 2018 Budget, the federal government recently announced a scheme allowing homeowners over the age of 65 access to a reverse mortgage style loan worth up to $11,799 per year for the rest of their lives. Initially, the scheme existed solely for part-pensioners, now anyone over the retirement age can access equity in their homes without needing to sell their property. Under the scheme, each annual payment made by the government would simultaneously reduce the equity in the pensioner’s property, subject to loan to property value (LVR) restrictions.
A reverse mortgage loan is also accessible through multiple non-government lenders. When considering this option, an expert broker specialising in this specific area can advise you how to find the best option for you on the market.
What is a Reverse Mortgage Home Loan?
A reverse mortgage home loan is a financial agreement in which a homeowner relinquishes equity in their home in exchange for an upfront loan amount or regular payments. This falls into the category of an ‘Equity Release Product’ (ERP), where your maximum loan amount is determined based on the equity you have in your property (your property value less any loans you may have). This product is typically sought after to supplement retirement income, the bank agrees to lend you a portion of the house’s value using the house itself as security.
- Ownership (You retain ownership of your property.)
- No Loan Repayments (During your time living in the property, there is no requirement to repay either capital or interest on the reverse mortgage loan (the interest is added to the loan amount).
- Protection Against Negative Equity (Reverse mortgages are subject to LVR limits ensuring that you never owe more than your property is worth.)
- Access More Equity As You Age (You will be able to access a higher proportion of your home’s value as you age.)
Why do ‘Reverse Mortgage Loans’ exist?
For a lot of older Australians, their wealth is tied up in property while their access to cash remains limited. The Grattan Institute released figures in March this year claiming that Australians between the age of 65 and 74 are today $480,000 wealthier in real terms than the equivalent household of that age bracket 12 years prior however, they are more likely to need to sell their home in order to access their equity.
Over time the financial pressures of retirees have increased alongside growing life expectancy rates. According to the 2018 Federal Budget papers, approximately 1.8 million age pensioners own their own home, making the Reverse Mortgage ERP an attractive option during retirement.
What are the options?
In the Reverse Mortgage home loan market there are various options available from multiple lenders to find the ‘Right Loan For You’. At Launch we have an expert broker in our team who specialises in this specific area to best advise your clients. Your clients are welcome to call us on (08) 9367 4222 or book a free consult by filling out the contact form on this page.