Introduction:
Are your retirement assets insufficient to cover the ever-increasing cost of living? Do you have large unexpected expenses in retirement? If you answered yes and you own your home, a reverse mortgage may provide the solution.

What is a Reverse Mortgage?

A reverse mortgage allows you to tap into the equity you have in your home without the need to sell the property. The money you access can be used for any purpose. It is generally a lifetime loan, which means you do not need to make any repayments while you are still living in the home. The interest and expenses are added to the loan and compound over time. The loan must generally be repaid when your home is sold or you (and your spouse) no longer live in the home, such as when you move into residential aged care or pass away. Most providers of reverse mortgages offer the option to take the amount borrowed as a lump sum, as a series of regular payments (like an income stream), or a combination of the two.

Features of a Reverse Mortgage:

• Interest Rates: Interest rates on reverse mortgages are generally higher than standard home loan rates. Depending on options allowed by the lender, the rate can be fixed for a term or for the life of the loan, or you can select a variable rate. Repayments are not required, but you may have the option to make repayments to reduce the debt owing, although some providers may charge a penalty.
• No Negative Equity Guarantee: This ensures that you (or your estate) can never owe more than the value of the home, no matter how long you stay in the home.
• Protected Equity Option: Offered by some providers, this allows you to ensure you retain a portion of the home’s future value upon sale. This feature can be particularly attractive if you (and your beneficiaries) are concerned about leaving an inheritance.

Centrelink Implications:

If you are in receipt of a Centrelink benefit such as the age pension, a reverse mortgage may impact how much you continue to receive. As a general rule, the impact on the assets and income tests may be more favorable if the reverse mortgage is taken as regular payments instead of a lump sum. We can assist you in understanding the impact a reverse mortgage would have on your Centrelink entitlements.

Who Are Reverse Mortgages Appropriate For?

People who can benefit most from a reverse mortgage include those who:

• Wish to top up their existing income from investments and/or Centrelink entitlements by tapping into the equity in their home. This may also include those who had a superannuation income stream that has been exhausted.
• Need urgent access to money for a special purpose such as medical expenses, travel, home improvements, or the purchase of a vehicle.
• Might consider downsizing to free up capital to fund retirement. As an alternative, for people who are happy living in their current home, a reverse mortgage may allow them to stay where they are while releasing equity in the home.

Your financial adviser can explain whether a reverse mortgage is appropriate for you.

Family Considerations:

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

The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.