For many people, their home is one of their most valuable assets. However, if you’re retired from paid employment, how do you access the equity you’ve built up in your home to help fund your lifestyle? Enter equity loans for seniors. Also known as reverse mortgages.

So what is a reverse mortgage?

Simply, a reverse mortgage allows you to tap into the equity you have in your own home without the need to sell the property. The money you access can be used for any purpose.

It is a lifetime loan, which means that you do not need to make any repayments while you are still living in the home. The interest and expenses will add to the loan and compound over time. The loan must generally be repaid when your home is sold or you (and your spouse) move to a long term aged care facility or you pass away. Interest and any applicable fees would be included in the outstanding balance of the loan.

Most providers of reverse mortgages will offer you the option to take the loan proceeds as a lump sum, as a series of regular payments (like an income stream) or a combination of the two.

What are some of the features of a reverse mortgage

Interest rates on reverse mortgages are generally around 1% higher than standard home loan rates. The rate can be fixed for a term or for the life of the loan or you can select a variable rate.

Some providers of reverse mortgages offer a ‘No Negative Equity Guarantee’. This is a feature that ensures that you (or your estate) will never owe more than the value of the home.

Other providers offer a ‘Protected Equity Option’ which allows you to retain a portion of the home’s future value upon sale.

Centrelink implications

If you’re receiving the Centrelink Age Pension, a reverse mortgage may impact on how much you continue to receive. As a general rule, the impact on the assets and income tests may be more favourable if the reverse mortgage is taken as regular payments instead of a lump sum.

Family considerations

It’s worthwhile involving your family and beneficiaries when considering taking out a reverse mortgage. A reverse mortgage has the potential to impact on the value of the estate you leave behind – it’s also possible that there can be no equity left in the home when it is eventually sold.

How much can you borrow?

You will generally not be able to borrow anywhere near as much on your home as compared with a standard home loan. Most providers have a formula that they apply in establishing the maximum they will lend under a reverse mortgage. Your age and the value of the property are important inputs into this formula.

Do you want to know more about equity loans? Call us today, toll free on 1800 679 000 for our Rockhampton office and 1800 804 431 for our Melbourne office.  One of our friendly advisers would be delighted to speak with you about reverse mortgages and whether it may be of benefit to you.

Robert Syben is a Certified Financial Planner with over 15 years’ experience in assisting in financial solutions for his clients. He is also Head of Financial Planning at Capricorn Investment Partners and the Pentad Group.
Please note: The information provided in this article is general advice only. It has been prepared without taking into account any person’s individual objectives, financial situation or needs. Before acting on anything in this article you should consider its appropriateness to you, having regard to your objectives, financial situation and needs.
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