Reverse Mortgages

Reverse mortgages can allow you to free up money to maintain or increase your standard of living. You don't have to make repayments, but the longer you have the loan the more the debt will grow. You can use the money, for example, to buy a new car, go on a holiday or make repairs to your house.

How Reverse Mortgages Work

They work in the opposite way to a home loan. Instead of the loan sum diminishing because of your repayments, interest is applied to your reverse mortgage loan so the debt increases.

You're not required to make any repayments but the impact of fees and interest means the debt grows over time. At current interest rates, the amount you owe would double in less than 10 years

Joint Owners

The lender allows you to stay in your house until you sell it, move out or pass away. If you live with a partner or spouse and they're joint owners of the house, the reverse mortgage would be in both names so your home is protected as long as one of you lives there.

If only one of you owns the house be warned: the loan will only be in one name so it will have to be repaid when the partner who owns the house passes away or moves into residential aged care.

Disadvantages of Reverse Mortgages

The main disadvantages of reverse mortgages are they can limit your options in the future:

  • On the conclusion of your mortgage you may not have enough money left to fund moving into a retirement village
  • The value of your estate may be much less than anticipated because the debt increases over time
  • If you take the loan as a lump sum it may have an impact on your eligibility for Centrelink payments
  • It is recommended that you consult a financial planner who is knowledgeable in reverse mortgage

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