reverse mortgage information.

This statement provides key information about reverse mortgages as required by the Australian Government under the National Consumer Credit Protection Act 2009.

1. What is a reverse mortgage?

A reverse mortgage allows you to borrow money using the equity in your home as security.

  • How you receive funds: You can take the loan as a lump sum, an income stream, a line of credit, or a combination of these.

  • Repayments: While interest is charged like any other loan, you usually do not need to make repayments while you live in your home.

  • When it ends: The loan must be repaid in full if you sell your home, pass away, or (in most cases) move into aged care.

  • Interest Rates: Typically, the interest rate on a reverse mortgage is higher than that of a standard home loan.

2. How is interest charged?

You are charged interest on the amount you borrow. Fees and interest are added to your loan balance as you go, meaning the interest compounds.

  • Compounding: You pay interest on your interest, as well as on any fees added to the loan.

  • Effect over time: The longer you hold the loan, the more the interest compounds and the larger the repayment amount becomes.

Example: The cost of borrowing $50,000

This example assumes a fixed rate of 8.5% compounded monthly with no fees and no repayments made.

Loan Term Interest Added Total Amount Owing

1 Year $4,420 $54,420

2 Years $9,230 $59,230

10 Years $66,632 $116,632

Note: In 10 years, you will owe more than twice the original loan amount.

 3. How much equity will be left?

Your remaining equity depends on the amount borrowed, the interest rate, the loan duration, and the value of your home when sold.

Scenario:

  • Home Value: $450,000

  • Reverse Mortgage: $50,000

  • Starting Equity: $400,000

Projected Outcomes after 20 Years:

The debt will grow from $50,000 to $272,060 over 20 years.

  • If home value stays the same: Your remaining equity will drop to $177,940.

  • If home value grows (3% per year): Your home will be worth $812,750, and your remaining equity will be $540,690.

4. Issues to Consider

A reverse mortgage may not be suitable for everyone. Consider the following issues to decide if it is right for you.

Considerations

Future Needs
Borrowing more now reduces the equity available for future needs, such as medical expenses, aged care, home maintenance, or a car. Consider how your health and living situation may change in 10–30 years.

Total Repayment
You can only estimate the final debt. The exact amount depends on the loan size, rate, duration, and final home value.

Negative Equity
Lenders must provide a "no negative equity guarantee." By law, you generally cannot owe more than the value of your home when it is sold to repay the loan.

Other Residents
If you move out (e.g., to aged care) or pass away, other residents in the home may have to move out unless the contract specifically protects their rights. Discuss this with your lender.

Inheritance
A reverse mortgage reduces the equity you can leave to your children or beneficiaries.

Alternatives
Consider if other options are more suitable, such as downsizing, family arrangements, government benefits, the pension loans scheme, or selling other assets.

Break Fees
Ending a fixed-interest reverse mortgage early may incur high break fees, potentially costing thousands of dollars.

Pension Impact
A reverse mortgage may affect your pension or government entitlements. Contact the Department of Human Services (Centrelink) Financial Information Service to check.

Sources of Other Information

  • ASIC's MoneySmart: Visit www.moneysmart.gov.au for a reverse mortgage calculator to help estimate your future equity.

  • National Information Centre on Retirement Investments (NICRI): Offers a free independent service to help consumers understand these products.