Reverse mortgages/Equity release loans – Using the equity in your home to produce a retirement income

Reverse mortgages, also known as Equity Release Loans are a way for you to access the equity in your home to produce an income. This can be particularly useful for those retirees who own their own home but receive relatively little income.

Reverse mortgage and equity release loan products can provide you with an income stream throughout retirement based on the equity in your home and is based on factors such as your age, the value of your home, the size of the loan required to produce an income and the ratio of this loan to your home’s value.

What is a reverse mortgage or equity release loan?

A reverse mortgage involves the person borrowing money against the equity in their home, with the principal and interest not being repaid until the home is sold or they pass away. The interest is capitalised, ie added to your mortgage. The equity released can be converted to either a lump sum or regular payments.

To protect you, all Australian reverse mortgage products are required to offer a “no negative equity” guarantee so that in the event of the debt rising above the value of the property, such as when interest rates are high and property values drop, the debt will never exceed the value of the property. This ensures that you will always be able to live in your home. As a result, the maximum loan to valuation ratio (LVR) that most lenders will give is 40-50%.

If you would like more information please contact us to speak to one of our affiliated mortgage brokers.