It is a common misconception that the bank will ‘own’ or ‘take’ the property under Reverse Mortgage. In fact the borrowers remain the full legal owners of the property, and the lender takes a mortgage only. As long as the borrower does not ‘default’ under the agreement by breaching key obligations, the bank cannot force a sale of your home. Reverse Mortgage contracts vary between lenders but common default conditions include failure to pay council rates, keep the property fully insured, and wilful neglect or damage of the house.
Yes, all lenders require that you obtain independent legal advice so you that you fully understand your obligations under the contract. Once your loan is approved, you will need to seek out a solicitor who can give you legal advice on your Reverse Mortgage.
Yes. Reverse Mortgages are now heavily regulated by the federal government as part of the National Consumer Credit Protection (NCCP) code of 2011. These regulations enshrine in law some very significant protection for borrowers, such as the No Negative Equity Guarantee.
All Reverse Mortgage lenders are now required by law to provide a guarantee that should the debt grow to such level over time that it exceeds the value of the security property realised at sale, then neither the borrower, nor beneficiaries of the estate, can be pursued for this shortfall after the sale has been concluded (as long as the borrower is not in default of the loan contract). Put simply, if the sale of the security property is not enough to cover the debt, the lender wears the loss.
In addition, the lender cannot force the borrower from the property if they think the debt may have grown to a level where a shortfall may occur.
Allow about $1,500 – $2,000 in total to establish your Reverse Mortgage loan. This amount includes the main costs such as the lender application fee, government charges, your legal advice fees, and any broker fees. This is an estimate only; you could pay more depending on the circumstances. If you are low on cash, you can usually elect to pay these Reverse Mortgage costs from the loan proceeds.
SEQUAL stands for “Senior Australian’s Equity Release Association of Lenders”. This an industry body that oversees the responsible provision of home equity release finance to the public.
SEQUAL lenders abide by a strict code of conduct that includes mandatory independent legal advice for all borrowers and a “No Negative Equity Guarantee”.
Seniors First ONLY uses SEQUAL accredited lenders for Reverse Mortgages.
If you wish to access the equity in your home, the main alternative to Reverse Mortgage is still to sell and downsize our home. However such a transaction will necessarily incur substantial transfer costs such as stamp duty and agent fees, and you may be required to move away from your neighbourhood into a cheaper suburb.
Increasingly other product alternatives to Reverse Mortgages are emerging. Some include what are termed ‘home reversion schemes’ where you can sell a share of your home in return for cash. This may allow you to stay in your home without selling or accumulating debt.
Home reversion schemes in Australia are not yet widely available. To enquire about home reversion schemes and other alternatives to reverse mortgage complete this form.
It is possible in many cases to structure your Reverse Mortgage or equity release plan so that it does not reduce the amount of pension income you currently receive. However, the outcome will depend on your individual circumstance and Seniors First is not permitted to advise you in this regard. ALL borrowers in receipt of government pension are directed to speak with a Financial Information Services officer at a Centrelink office before lodging an application.
Some lenders offer an option called ‘Protected Equity’, which guarantees that a requested proportion of equity is preserved for beneficiaries (it also means you can’t borrow as much). If you choose a loan without protected equity, then the amount of equity you will have left will be determined by the following factors:
Although the interest will accumulate and compound, based on past trends your property should also increase in value over time, offsetting the increasing loan balance.