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How does a Reverse Mortgage work?

Learn how a Reverse Mortgage works, and more

FREE guide from Seniors First. Downloaded by thousands of Australians since its introduction in 2008.

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How do Reverse Mortgages work

As with standard home loans, a Seniors First Reverse Mortgage is secured by the first registered mortgage over the borrower’s house.

The amount of equity that you can release is determined by your age and the security property’s value (although lenders have different policies on how much they will lend).

Crucially, however, you will retain full ownership and can stay in your home as long as you want.

The interest is ‘capitalised’ -charged back to the loan account – and will compound over time, i.e., the loan balance will increase unless you make voluntary payments.

The debt, including all interest and fees owed, is repaid to the lender when:

  • You sell the property of your own accord, OR
  • You move into aged care (not required with some lenders), OR
  • The last surviving borrower dies (if you are a couple)
  • You sell the property of your own accord, OR
  • You move into aged care (not required with some lenders), OR
  • The last surviving borrower dies (if you are a couple)
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Reverse Mortgage conditions 

Many of the Reverse Mortgage lenders on the Seniors First panel offer similar conditions in their contract. Indeed some of these are common to all lenders, because they enshrined in the legislation to protect consumers. 

However there are key variations between them that make your choice of lender especially important in some cases. Some of circumstances where the Reverse Mortgage conditions of a lender 

Reverse Mortgage explained

The draw down options

Seniors First offers flexible drawdown options depending on your preferences and needs.

Lump Sum Payment

Our lenders can pay you a lump sum money at the start of your loan. Policies between lenders vary, but some have a  minimum drawdown for this option is of $10,000, unless you are planning to use the money for in-home aged care.

This option is ideal for debt consolidation, home renovation, new car purchase, or even a holiday. 

On top of the lump sum, you can receive the proceeds as needed through the other available options. 

Regular 'Income'

Receiving regular advances is ideal if you are planning to draw on your loan gradually, to supplement your retirement income. It's great if you need help covering living expenses.

This option will allow you to set a regular drawdown payment (monthly, quarterly, or yearly) for up to 10 years. 

The regular amount you receive feels like 'income' but it is actually a small portion of your home equity. You can set the amount you receive from hundreds, to thousands of dollars each month. The limit is determined by the value of your home, your age and the term schedule. 

Cash Reserve

You can unlock your home equity to set up a cash reserve that you can easily access anytime you want.

The good thing about this option is that you will only pay interest on the drawn amount. 

Depending on the lender, there may be no minimum drawdown amount on a cash reserve facility. Some lenders even allow you to access this money directly by debit card at ATM's.

What our clients say...

Andrew Cate from Seniors First was amazing, he managed to arrange my reverse mortgage seamlessly. Working with him made the whole process completely painless and he explained every step along the way. I have no hesitation in recommending him to anyone thinking of this kind of mortgage Thank you so much Andrrw and Seniors First!

From the outset Andrew Cate was very helpful, considerate and very informative. He was available to answer questions at all times and we appreciated his professionalism and understanding of our needs during our application. Highly recommended. Thank you Andrew from Michael and Cherie Nikolaidis

Outstanding customer service received from Andrew Cate, Reverse Mortgage Specialist who expertly guided me through the loan process and kept me informed every step of the way. Sincere thanks to Andrew and Seniors First .. the loan has been life changing.

We recently completed a transaction through Seniors First and have been very impressed with the way it has been handled. we would have no hesitation in recommending them to anyone looking to secure their future requiements for finance. In particular we were looked after by Andrew Cate who gave us great help throughout the process.

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Angela Femia
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Michael Nik
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Deborah Collett
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Kaye Kinsey

Frequently asked questions (FAQs)

Can I repay the loan early?

Seniors First Reverse Mortgages are flexible, and you can repay the loan early without penalty and charges.

When does the loan have to be repaid?

With a Seniors First Reverse Mortgage, you are not required to make regular repayments. The total loan amount, including interests, can be repaid when you pass away, move into long-term care, sell your property, or move out permanently from your home.

The loan will be repaid from the sale proceeds of your home and the balance will be retained by you or your estate. 

How can the funds be dispersed?

You may take the funds either as a lump sum, a regular income stream, a cash reserve or a combination depending on your preferences or needs.

What happens if I want to sell my home?

Because you retain ownership of your home, you have the right to sell the property anytime you want.

But by placing your home in the market, the Reverse Mortgage loan is deemed payable including interest rates and fees.

Will I lose my home to the bank if I get a Reverse Mortgage?

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, not keeping the property fully insured, and wilful neglect or damage of the house.

Is legal advice required?

Yes, all lenders require that you obtain independent legal advice so 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.

Are Reverse Mortgages regulated by the government?

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.

What is a 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 the sale, then neither the borrower nor the 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 bears the loss.

In addition, the lender cannot force the borrower from the property if they think that the debt may have grown to a level where a shortfall may occur.

How much are the set-up costs for a Reverse Mortgage?

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, legal advice fees, and broker fees. This is only an estimate; 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.

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