Reverse mortgage

Pensioners and retirees who own their home and want to access its equity without selling: for living costs, home improvements, care, or simply breathing room.

Most lenders require you to be at least fifty-five, and the minimum age often rises for larger drawdowns. It tends to suit people who are asset rich and income poor, who intend to stay in the home for a long time, and who have talked the decision through with the people it will affect.

A reverse mortgage lets you draw on the equity in your owner-occupied home with no repayments required until the end of the loan, usually when you sell or leave the home. You keep ownership, keep living in your community, and keep any future growth in the property's value.

Drawdown is flexible: a lump sum, a regular income stream, or a mix. Voluntary repayments are available if circumstances change.

The part that deserves your full attention is what happens in between. Because nothing is repaid, interest is added to the balance each month and then itself attracts interest. The debt does not grow in a straight line, it compounds, and over a long retirement it can grow to several times what you originally drew. The example below shows exactly that, and we would rather you saw it before an appointment than after.

Australian law provides a statutory no negative equity guarantee on reverse mortgages entered into since September 2012. You cannot be required to repay more than the net proceeds of selling the home, provided you have met the terms of the contract. What the guarantee protects is you. What it does not protect is the inheritance, because the debt is repaid from the sale before anything passes on.

Deliberately unhurried. This is not a product to arrange quickly, and every lender in the space builds in steps designed to slow it down.

1. A long first conversation. What you need the money for, how long you expect to stay in the home, and who else should be part of the decision. In English or 中文, and with your family present if you want them there.
2. Alternatives first. Downsizing, the government Home Equity Access Scheme, or help from family may cost you far less. If one of those fits better, we will say so.
3. Projections you keep. We show you the projected balance at five, ten, fifteen and twenty years, and what it leaves against a range of property values. You take these away and sit with them.
4. Independent legal advice. Lenders require you to obtain it before proceeding, and some require independent financial advice as well. This is a protection, not a formality.
5. Application and valuation. The lender assesses against its own criteria and values the property. How much you can draw depends on your age and that valuation.
6. The lender decides. If approved, documents are issued and funds are released as a lump sum, an income stream, or a facility you draw on as needed. Approval is the lender's decision alone.

Because nothing is repaid along the way, interest compounds and the balance grows over time, which affects what you leave behind. We explain every figure in plain words first, and we encourage you to involve your family and legal adviser in the decision.

Four things matter more than the rate. The debt compounds, so drawing early and drawing large costs far more than drawing later and drawing small. It can affect your Age Pension, because how the money is held once drawn is assessed by Centrelink even though the home itself is generally exempt. It reduces what passes to your family, sometimes substantially. And if you need to move into residential aged care, the loan generally becomes repayable, which can force a sale at a time you did not choose.

Drawing an income stream rather than a lump sum, and drawing only what you need, keeps the compounding much smaller. Where a reverse mortgage is right at all, that is usually the shape it should take.