Recent changes in the demographic of the population in Australia have seen an increase in Asset Rich and Cash Poor elderly Australians. It is expected that this segment of the market will continue to increase as the ‘Baby Boomers’ start reaching retirement age.
A reverse mortgage allows the borrower to borrow funds for any purpose or for day-to-day living expenses, secured against the equity in their property.
The main difference to this product to standard home loans is that the lender does not require the borrower to make any principal or interest repayments during the loan term. The debt instead capitalizes. The debt is traditionally repaid once the property securing the loan is sold.
Due to the nature of the facility, with interest capitalized until the full payment of the debt, lenders restrict the amount that they will advance against the value of the property. Usually, lenders will only lend up to 20% of the value of the property, depending upon the age of the borrower.
The borrower has the option of repaying the facility through normal means, however it’s not a requirement of a loan, allowing the consumer to maintain their current standard of living.
An additional requirement of these facilities is that the consumer will be required to obtain independent legal and financial advice, as the nature of the facility diminishes the borrower’s equity in the property.
In 2018, many lenders removed their Reverse Mortgage products from the market, but we still may be able to refer you to a Reverse Mortgage Provider.