A guide to reverse mortgages

A reverse mortgage home loan is a loan where generally older home owners, who have usually paid off their original home loan, borrow against the value of their house to obtain cash to be used for the likes of overseas travel, improved lifestyle or to pay for grandchildren's school fees. They do not have to repay the mortgage loan until they sell the property, move or die.

So, if you take out a reverse mortgage, you don't have to make any payments, but each year the fees and interest that you would normally have to pay are added to the loan balance. The outstanding loan balance therefore increases, and over time you are charged interest on the interest (compound interest) and that increases the total amount you owe.

Benefits of a reverse mortgage

• You can access cash as a lump sum, a regular income stream or a combination of both

• You do not need a current income to qualify

• You get to stay in your home and keep ownership

• You usually do not have to make any regular repayments while you live in your home

Things you should consider

• There is no way to know for sure how much you will owe at the end of the home loan

• The interest rate for a reverse mortgage is generally higher than a regular home loan and some borrowers can end up owing more than their house is worth

• You may have to maintain the property to a standard required by the lender. If you do not, there is a chance you might lose your home

• If you are the sole owner of your home and you move or die, anyone who lives with you may not be able to stay in the home

• Default clauses in some reverse mortgage loans could also be triggered by simply forgetting to pay council rates

• You might not have enough money left over after paying the mortgage loan for aged care accommodation, or to leave an inheritance, so we strongly recommend that you speak with your mortgage consultant or your family first before taking out a reverse mortgage

• It could impact on any Centrelink or Department of Veterans' Affairs payments you might receive

• It can be more beneficial to receive regular payments rather than a lump sum from the reverse mortgage

• Borrow only what you need

Before you take out a reverse mortgage, we recommend that you speak with one of the mortgage brokers at Intellichoice first on 1300 55 10 45. They will be able to advise you whether a reverse mortgage is suitable for you based on your circumstances.