The Australian Equity Release industry operates within a regulatory framework for consumer protection and lenders that provide this product; they have a responsibility and obligation under law to act on the borrower’s best interest. This is becoming a rapidly emerging market as this product is a specialised product and designed for a specific type of applicant with specific needs.
A reverse mortgage is a product offered by a few banks in the market place. Specifically designed for applicants aged 60 and over to facilitate borrowing against the equity in their current home. The applicants can access funds without the need to make repayments on the loan during their lifetime. Basically the loan will be repaid when the borrower dies or alternatively sells the home.
The loan amount is typically capped at around $80,000 to $100,000 however; a higher amount may be obtained at the bank's discretion however, the amount of money that you will ultimately be able to borrow will largely depend upon your age and the amount of equity in your home.
A reverse mortgage usually comes with an interest rate marginally higher than the average market standard variable rate. This product supports people that might be asset rich and short of cash. Retirees can supplement their current pensions with additional cash to improve their current lifestyles. You can use the funds for any worthwhile purpose such as home improvements, debt consolidation, holidays or even buy a new car.
A reverse mortgage is unlike a traditional banking loan. That is, the applicant does not need to be employed or derive an income. The monthly interest due is actually added to the original loan amount and upon the death of the borrower the bank claims the principle and the interest charged over the term of the loan by selling the home or the borrower may sell the home and pay out the remaining balance. However, during the mortgage term a borrower may have the option of making regular repayments or pay irregular lump sum deposits into the mortgage.
A reverse mortgage may have financial implications for beneficiaries of the estate which is secured by the loan. Applicants considering a reverse mortgage should consult a solicitor or financial planner to discuss all possible implications such as taxation, pension benefits, social security entitlements and estate planning. Applicants considering this type of product should also discuss the product and implications with their families.