A reverse mortgage is a way to access the equity in your home and free up more cash for everything from overseas holidays to everyday spending. Many retirees choose a reverse mortgage as part of their retirement plan to ensure they have ample cash flow for enjoying their golden years. There are a wide range of benefits to a reverse mortgage including:
Please note that every individual is different and a reverse mortgage may not be the best choice for you. Read about our reverse mortgage alternatives below or talk to a financial advisor.
Home equity loans and reverse mortgages perform similar functions, leveraging existing equity in a home to free up cash for a homeowner. Here, we look at the similarities and differences between the two loan types, who can access them and how they can help homeowners manage their finances.
No, while home equity loans and reverse mortgages both leverage mortgage equity as a form of home loan and share some similar features they are not the same thing. A home equity loan is paid as a lump sum and is available to any homeowners who have at least 20% equity in their mortgage. Meanwhile, a reverse mortgage is available only to retirees over the age of 60 and is paid as a line of credit, rather than a lump sum.
Want access to your home's equity but aged under 60? Learn more about the EquitiSmart Line of Credit home equity loan.
|Reverse Mortgage||Home Equity Loan|
|Description||A reverse mortgage uses the property as collateral for a line of credit.||A home equity loan is a loan which uses the existing equity of a property as collateral.|
|Who's eligible?||Retirees aged 60+||Anyone|
|Equity requirement||The homeowner must own their home outright or have only a small amount outstanding on their mortgage||The homeowner must have at least 20% equity|
|Payment method||Line of credit||Lump sum|
|Repayments||At end of contract
Optional voluntary payments
Legally, lenders who offer reverse mortgages must guarantee that once your reverse mortgage contract comes to an end you will not be expected to pay back more than the value of the home. So, if for any reason your property sells for less than the amount borrowed for your Reverse Mortgage, you will only need to pay the amount that’s earned from the sale of your house. Your lender is obliged to cover any shortfall if the sale of your home doesn’t fulfil the cost of your Reverse Mortgage. This is called the No Negative Equity Guarantee.
The No Negative Equity Guarantee sets a Reverse Mortgage apart from regular home loans. A person who holds a regular mortgage will be liable to all costs, even if the loan price exceeds that of the sale price of the home in cases of real estate market decline.
Note: There are exceptions to the No Negative Equity Guarantee. At Gateway, the No Negative Equity Guarantee will not apply in cases where we determine that a borrower has provided fraudulent or material misrepresentation pertaining to their Reverse Mortgage loan before, during or after the contract was established. Minimum maintenance requirements are also required to be met for a borrower to qualify for the No Negative Equity Guarantee.
A reverse mortgage can be used in the same way as any other home loan, to pay for large one-off purchases, or it can be used as an additional income stream for regular everyday purchases. Some common uses for reverse mortgages include:
In short, a reverse mortgage can be used for whatever you want! Learn more about Reverse Mortgages with Gateway.
Yes, you will need to seek independent legal advice prior to applying for a Reverse Mortgage. We highly recommend you seek out a professional financial advisor who can explain the aspects of a Reverse Mortgage and its impact on your overall financial situation. Reverse Mortgages aren’t a one-size-fits-all solution and it may not be the right option for you. We also highly recommend that you speak with your family members and any beneficiaries of your estate as a Reverse Mortgage will impact the inheritance they receive from the eventual sale of your property.
No, you don’t have to be retired to access a Reverse Mortgage, however, you must be aged over 60 years old and you must own your own home.
At Gateway Bank, you might qualify for a Reverse Mortgage if you meet the following criteria:
A reverse mortgage is a type of loan which enables you to borrow a portion of your home’s value. Essentially it liquifies part of your property’s value and turns it to cash without the need to sell your home. As a Gateway member, you can access up to $1 million worth of your home’s value while still living in your home. So, how does it work?
Unlike a typical loan, you won’t need to make regular ongoing loan repayments. Your Reverse Mortgage will only need to be paid in full under the following circumstances:
The sale of your home will cover the cost of your Reverse Mortgage. The No Negative Equity Guarantee will ensure the overall cost of your Reverse Mortgage will not exceed the sale price of your property.
You are also welcome to make voluntary repayments prior to the above events. At Gateway we allow unlimited penalty-free voluntary repayments on Reverse Mortgages to help minimise the interest paid at the conclusion of your loan.
Reverse mortgages are a popular choice for asset rich and cash poor homeowners and for those who want to supplement their pension. A flexible reverse mortgage can be an effective way to improve your cash flow during your retirement, however, there are lots of complex factors to consider before deciding if a reverse mortgage is right for you. At Gateway Bank we require all Members applying for a Reverse Mortgage to first seek independent professional financial advice. We also strongly recommend consulting your family prior to choosing a reverse mortgage. Here are some factors to consider when deciding if a reverse mortgage is right for you.
While there is no 100% accurate way to estimate how much you will end up owing on your reverse mortgage, a financial advisor can help you work out whether a reverse mortgage is a cost-effective option for you. Calculating the overall cost of a reverse mortgage is complicated as it’s dependent on a number of variables including interest rates, the value of your home, the length of your loan and how much you borrow.
As with any other loan, your reverse mortgage will incur interest. The longer your loan and the more you borrow, the higher the amount of interest to pay. To get a detailed cost estimate on your reverse mortgage get in touch today for a quote.
If you are the sole borrower of the reverse mortgage your partner and other family members may have to leave the home when the reverse mortgage ends, i.e. after you move out, move into a retirement home or pass away. To ensure your partner or other family members can stay living in your home you may want to consider entering into your reverse mortgage with them as a joint borrower. It’s important to note that all borrowers must meet the basic age requirements and other reverse mortgage borrowing criteria.
The amount of equity in your home will be reduced by a reverse mortgage, meaning there will be less equity to leave for your family or other inheritors. The amount borrowed coupled with the amount of time the loan is held will influence the cost of the loan and impact the amount of equity remaining. However, your family is guaranteed not to be liable for costs from your reverse mortgage thanks to our No Negative Equity Guarantee which ensures that if the sale price of your property doesn’t cover the amount owed on your reverse mortgage, the balance will be covered by Gateway.
We recommend talking to your family and other beneficiaries before applying for a reverse mortgage as well as seeking independent professional legal advice and financial advice.
A reverse mortgage allows you to remain in your home while accessing its equity. However, a reverse mortgage may not be the best solution for you. There are a number of alternatives which may better suit your financial situation.
A reverse mortgage might impact your pension or other Australian Government payments. When your Reverse Mortgage payments are used to purchase an asset such as a car or are left sitting in savings it may impact your eligibility for Government payments. We recommend contacting Centrelink on 132 300 and asking a Financial Information Service Officer how a reverse mortgage could impact your entitlements. You will also need to obtain independent advice from a professional financial advisor to assess the potential impact of a reverse mortgage on your overall financial situation.
It’s difficult to calculate the amount of equity you will have left after your reverse mortgage is repaid as there are a number of variables involved. It will depend on the amount of equity you’ve borrowed, the length of the loan, the interest rate and the amount your home makes when it is sold. If the value of your home increases during the length of your reverse mortgage, you will have more equity remaining than if it remains the same or decreases during the lifetime of your loan. Your equity will never go into negative figures thanks to the No Negative Equity Guarantee – if your home decreases in value and the sale of your property isn’t enough to cover the loan, the balance will be paid by Gateway.
A lump sum provides instantaneous access to a large sum of money, while a line of credit allows you to draw down a predetermined amount of money. A flexible Reverse Mortgage line of credit allows you to access your money as and when you need it, whereas a lump sum leaves funds sitting in your account you may not necessarily need. The benefit of a line of credit is that it prevents you from paying unnecessary interest on the money you don’t need or use.
At Gateway, we provide the best of both worlds with easy access to your money and no unnecessary interest paid on unused money. You can access your line of credit via a Visa Eco Debit Card, online banking, telephone banking and via the Gateway app, meaning you can use your reverse mortgage funds as easily as an everyday savings account.
At Gateway our minimum loan amount for a reverse mortgage is $50,000 with a maximum of $1,000,000 and a top up minimum of $20,000.
You must be at least 60-years-old to borrow money using a reverse mortgage – the older you are, the greater the percentage of your home’s equity you’re eligible to borrow. A 60-year-old may borrow up to 15% of their home’s value with an additional 1% able to be borrowed for each subsequent year, for example, a 75-year-old may borrow 30% of their home’s equity. If there are multiple borrowers on the reverse mortgage, the borrowing amount is based on the youngest borrower.
With our convenient line of credit, you’ll have flexible on-demand access to your reverse mortgage funds. You’ll be able to use your money using the following banking channels:
Reverse mortgage interest rates are typically higher than other loans, however, with our Line of Credit Reverse Mortgage, you only pay interest on the funds you use, potentially saving thousands in interest over the course of your loan.
At Gateway we offer a competitive introductory interest rate for the first 5 years of your loan. Unlike some traditional reverse mortgage lenders, we focus on flexibility and reducing the amount of interest you need to pay by offering a convenient Line of Credit and unlimited fee-free voluntary repayments.
Gateway reserves the right to vary these interest rates at any time. Interest rates quoted are for new lending only. Existing borrowers should contact Gateway to discuss their requirements. Applications for finance are subject to our standard credit assessment criteria. Full terms and conditions are included in the loan offer. Fees and charges apply.
After the 5-year introductory period the interest rate reverts to an ongoing variable rate, currently 5.99% p.a. Rate is subject to change.
Comparison rates are calculated based on a loan amount of $150,000 over a 25-year term. WARNING: Comparison rates are true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Applies to standard single residential dwellings to $1 million in Metro locations and $500,000 in Regional locations (maximum land area 2.2ha/5 acres). An additional valuation fee may apply for non-standard properties.
1 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.
2 Refer to our General Fees, Charges and Transaction limits. You should consider if a; Visa Debit Card, Online Banking, or Reverse Mortgage is right for you.
3 If property valued at under $1m in metro locations and $500k in regional locations with a maximum land area of 2.2ha/5 acres. Any additional valuation costs incurred for a non-standard property are payable in addition to the Settlement Fee.
4 Loan variation fees may apply when changing the structure of an existing Gateway Loan, such as a top up.
5 A Discharge fee is payable when discharging your mortgage with Gateway.
6 For other fees, view our Loan Accounts Fees and Charges.