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Reverses mortgages are for older Australian home owners who need to access some of the money in their property without selling it (this money is called equity).
A reverse mortgage lender charges fees and interest on the money you borrow. But instead of making monthly payments to repay the loan over time, you pay it all back later when you sell the property, move into a retirement home or die.
The amount of equity in your home you can borrow is limited and is determined by your age and the value of your property. Lenders won't let you borrow more than 50% of your property's value. You need to be at least 60 to take out a reverse mortgage.
Taking out a reverse mortgage can affect your ability to pay for future living expenses and reduces the value of your home. A reverse mortgage could also affect your eligibility for the Aged Pension.
Seek independent financial advice before applying for a reverse mortgage and check with Services Australia to see if a reverse mortgage could affect your access to the pension.
Equity is the current value of your home, minus any debts. It's how much of the home you own, in a dollar value.
If your home is worth $700,000 and you have $100,000 left on your home loan you have $600,000 equity. If you've paid off your home loan your equity is $700,000.
A reverse mortgage lets you borrow money using the equity in your home.
You don't have to repay a reverse mortgage debt over time like a normal home loan.
You can pay it off when you sell your home, move into an aged care facility or die.
Some lenders may let you pay off part or all of the debt in instalments.
You can borrow the money in one go (lump sum), a regular monthly payment or a line of credit (an approved amount you can spend flexibly).
Most reverse mortgage lenders let you borrow between 15% and 45% of a property's value. The percentage also depends on your age. Here's an example.
| Age of borrower | Percentage of property value available |
|---|---|
| 60 | 15% |
| 65 | 20% |
| 70 | 25% |
| 75 | 30% |
| 80 | 35.5% |
| 85+ | 45% |
You're 65 years old and you have a home valued at $900,000. You own the home outright, so your equity is 100%, or $900,000.
Your lender will let you borrow up to 20% of your equity, which is $180,000.
You decide to borrow $60,000 with an interest rate of 9% and a $500 application fee. In 10 years you sell the property, which has risen in value 3% a year to be worth over $1,200,000.
After 10 years our $60,000 loan plus interest is now a debt of $148,307. After paying the debt your equity is 88% of the home's value, which is over $1 million.*
*This is a simple reverse mortgage calculation that assumes a fixed 9% interest rate and a 3% annual increase in your property's value. It does not take other factors into account and is purely an illustrative example.
Use our reverse mortgage calculator to estimate how much you can borrow and what it will cost you.
To use the calculator, enter the following details:
Every borrower has unique needs. But it's always important to find a loan with a competitive rate and lower fees. But there are other factors too.
Several smaller banks and specialist retirement finance providers offer reverse mortgages in Australia today. The Big Four banks and their subsidiaries no longer offer reverse mortgages.
Please note that this list is not exhaustive.
Reverse mortgages affect the value of the biggest asset most people own: the family home. That's not to say that reverse mortgages are bad, but borrowers need to do their research and decide if this is the right choice for them.
If you want to access the equity in your property, but don't want to take out a reverse mortgage, the primary alternative is to sell or downsize your home. However, this will incur other costs such as stamp duty, agent fees and conveyancing fees.
The Home Equity Access Scheme is a federal government scheme for older Australians. Similar to a reverse mortgage, the scheme allows eligible older Australians to get "a voluntary non-taxable loan" using a property as security.
The scheme offers a lower interest rate than reverse mortgages. To qualify you need to be of pension age, receiving an eligible pension, own a property and meet other criteria.
If you still have a home loan your lender might let you borrow a little more via a home loan top-up. This is just a way of extending your loan to borrow a little more. The interest rate will be lower than a reverse mortgage. But unlike a reverse mortgage you'll have to make regular repayments.
Another way to access equity in your home is via a line of credit loan secured by your property. You can get approved for a set amount and then you only pay interest on the money you spend.
Like a home loan top-up, you'll need to repay this loan over time, unlike a reverse mortgage.
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My husband and I are considering a reverse mortgage for home renovations he is 69 and I’m 68 which lenders supply these loans and what fees and interest would we incur we own our home
Hi Sharon,
Thank you for your inquiry.
As per checking you are already in the correct page. Please use the table provided above to review and compare the available options for you.
I hope this information has helped.
Cheers,
Harold
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Cheers,
Anndy
Hi C Saum,
Thanks for your question.
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You’ll need to speak to the Secretary of Housing and Urban Development in the USA directly regarding this enquiry.
Cheers,
Shirley