A Reverse Mortgage or Equity Release loan, enables retirees ages 60 and above to convert part of the equity in their home (Note: It is normally between 15% & 40% of the value of the property you are offering as security, but this will also depend of the borrowers age. For example, if you are 60 years old, you can borrow up to 15% of the value of your home. Where a 85 year old is entitled to borrow up to 40% of the value of their home) into a stream of incomes or lump sum payment without having to sell their home, give up title, or take on a new monthly mortgage. Instead of making repayments into the mortgage, borrowers will have the option to receive regular payments or a lump sum payments from the lender as part of releasing equity from their home. Funds can be used for any worth while purpose, such as holidays, new car, renovations, gift, etc.

The difference between this type of loan and a normal loan is that all cost associated with the loan, such as your normal loan repayments and fees can simply be added onto the balance owing on the loan each month. This is called "Interest Capitalisation". It means you will be paying interest on interest and that the loan balance will increase over time, however the benefit is that you don't have to come up with any loan repayments yourself each month. Essentially the loan will continue until either the property is sold, the borrowers no longer live in the home (Note: Some lenders will allow you use the funds you have borrowed to move into an age care facility and still keep your property or even rent it out in the mean time, lenders terms and conditions will apply) at which time the loan will have to be repaid in full, usually through the sale of the property, or by possibly by children or beneficiaries paying the loan out by refinancing.

Reverse Mortgage General Tips

• Decide whether you need to release the equity from your property as a lump sum payment, instalments or as a combination of lump sum and instalments (Important: before deciding, always make sure to speak to a Centrelink representative in how this will affect your current entitlements).

• Ask your lender whether they have a "No Negative Equity Guarantee", which means that neither you or your estate will never owe more than the net sale proceeds of your home. Any short fall between net sale proceeds and the amount owed should be covered by the lender.

• Ask whether you can make additional repayment to reduce your debt.

• Ask whether you can redraw any additional repayments that you have made.

• Ask whether you can borrow more at a later time.

What should I ask about Reverse Mortgage products?

• Will equity release payments affect the social security benefits and income tax position of my partner and I?

• How much can I borrow now and as I get older?

• How much will my upfront and ongoing fees cost me over the period of the loan?

• Under what conditions will my loan be due?

• Is the interest rate variable, fixed for a period or for the life of the loan, or can it be split between variable and fixed?

• Can my partner still reside in the property if I, the primary loan applicant died?

• Are there any penalties if I decide to repay the loan earlier than expected?

• Are there any other obligations such as home maintenance, property taxes and insurance that I should be aware of once I have taken out the loan?

IMPORTANT: This is information should be used as a general guide only. You should always seek independent financial, legal & taxation advice before making any financial decision.