What is a Reverse Mortgage?
For many retirees, enjoying their retirement years in their own home is a long held goal but for some this dream can be challenging. The cost of upkeep and renovations on a property can become prohibitive, or you’re struggling to keep up with monthly bills, you might be considering downsizing, moving into a retirement village, or other options requiring you to sell and move out of your home. If you’re not ready to leave your family home behind but worried about your future financial position, there is another option available, a Reverse Mortgage. A Reverse Mortgage may allow you to access the equity that is locked in your home without needing to sell or move out.
What is a Reverse Mortgage?
A Reverse Mortgage (sometimes known as an Equity Release loan) is a loan that allows you to borrow a portion of the value of your property. Whether you need a lump sum payment for life expenses such as; renovations, medical expenses, refinancing existing debt, a new car, travel or to assist with moving or downsizing, or you need a gradual release of funds if your pension is insufficient to support your quality of life, or even to use for stamp duty and brokerage on moving or downsizing, you can use, a Reverse Mortgage can help you with any situation life throws at you.
Unlike other more traditional loans, there are no ongoing repayments that need to be made. Interest accrues over time and is added to the amount you’ve borrowed. The funds and interest from the Reverse Mortgage only need to be paid when the house is sold, you move out of the property or pass away. This means you can access some of the equity in your property today knowing the debt will be covered by the sale of your property in the future.
Some of the key factors that help determine how much you can borrow are the age of the youngest borrower and the value of the security property. These factors determine the Loan to Value Ratio (LVR) available. For example, at 65 years old you could borrow 20% of the property value, and this increases by 1% for every year over 65 years old. This means at age 80 you could borrow 35% of the property value.
Who is eligible Reverse Mortgage?
You may be eligible for a Reverse Mortgage with Gateway Bank if you:
- Own your own home
- Are at least 65 years of age
- You have received independent legal advice to ensure you understand all the elements of a reverse mortgage and we strongly recommend that you seek independent financial advice regarding the product.
It is also recommended that you discuss the product with your family and any beneficiaries as a Reverse Mortgage will impact any potential inheritance from the sale of the property.
What should you be aware of before applying for a Reverse Mortgage?
There are a number of considerations when looking into a Reverse Mortgage as an option to fund your retirement. These include compounding interest, the impact of the available equity left when your home is eventually sold, any inheritance you’re planning on passing on as well as any implications on your aged pension.
Compounding interest refers to ‘interest on interest’. As interest accumulates, it increases the total loan amount. Each month when the interest is calculated , it’s calculated on this new increased loan amount.
When considering the impact of compounding interest on your Reverse Mortgage, it may be worth considering a product which lets you draw down only what you need, when you need it. This way you’re only paying interest on the money you’ve drawn, instead of the entire loan amount. Another feature that can help reduce the interest on a Reverse Mortgage is a discounted introductory rate that can help reduce the interest in the early years of the loan.
Other limitations you should consider include the impact on inheritance, other occupants living in your home, aged pension implications and future planning for options such as moving into aged care. For further details on these implications, see our Reverse Mortgage Brochure.
Accessing the wealth locked in your home with a Reverse Mortgage could be a great way to enable you to enjoy your retirement in your own home. Taking a Reverse Mortgage can be a complex and emotive decision with many considerations. Therefore, it is strongly recommended that you discuss your situation with your family, seek independent advice, and speak to a specialist Reverse Mortgage broker or lender as to whether a Reverse Mortgage is suitable for you.
A Reverse Mortgage with Gateway Bank
Gateway Bank’s Reverse Mortgage is a Line of Credit which allows you to access a portion of the value in your property without having to sell it. A Line of Credit gives you full control over how you use the funds up to your approved limit, and focuses on flexibility and reducing the interest you’ll need to pay.
Most Reverse Mortgages either allow you to receive a lump sum amount or draw down on a limit progressively. If you receive a lump sum, you will have readily available access to your money, but you’ll be paying interest on funds that you may not be using or need at that time. In addition, you may have your pension eligibility impacted if the money stays in your account. Conversely, if you progressively draw down on an agreed limit, you won’t pay as much interest on unused funds, but every draw down may cost you in fees and take time to process.
With Gateway Bank’s Reverse Mortgage you don’t pay interest on unused money, and you don’t have to wait to access your funds or pay fees when you need to draw down. The money is yours, waiting for your use. View transactions and transfer funds using our simple and user-friendly Online Banking platform or Gateway2go mobile app**, giving you a complete view of your accounts saving you time and hassle, or access your funds via a Visa Debit card^, enabling funds to be accessed through Visa, EFTPOS and ATMs, and giving you the freedom you to shop online both in Australia and overseas as you need it.
To help reduce the impact of compounding interest the Gateway Bank Reverse Mortgage offers a low introductory rate for the first five years of the reverse mortgage. The discounted rate for the first five years of the loan will help maintain the value that you hold in your property for longer.
Gateway’s Reverse Mortgage also includes the ‘No Negative Equity Guarantee*’ that ensures you will never owe more on your loan than your home is worth. This means that, subject to meeting basic maintenance requirements, the debt can’t exceed the sale value of the home. This is not the case with a normal mortgage, where there are scenarios in which real estate values decline and borrowers might owe more than the proceeds of selling the home.
For many Australians in their retirement years, a Reverse Mortgage offers a solution that allows the freedom and security of financial assistance without the need to sell or move out of the family home. For more information about a Gateway Bank Reverse Mortgage, read our helpful Reverse Mortgage brochure, visit our information page for details about our current rates and features, or chat to one of our team to find out more information.
* Negative equity protection will not apply if we determine, acting reasonably, that you engaged in fraud, or made a material misrepresentation, relating to your loan before, at, or after the time your loan contract was made.
** Gateway 2go™ for Android™ is only available from Google Play™. Gateway 2go™ for iPhone is only available from the App Store. iPhone is a trademark of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android and Google Play are trademarks of Google Inc.
^ You should consider if a Visa Debit Card is right for you.