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The key feature of these increasingly popular loans is that the borrowers are not required to make any regular monthly repayments against their loans. The interest on the loans is simply capitalized, which means that the borrower has more cash in the short term with which to meet living expenses.
Eventually of course the loans have to be repaid - including all principal and interest (and interest on interest). This requirement to repay normally occurs after the death of the borrower and if there is more than one borrower it is after the death of the last surviving borrower. The loan will also be repayable if the mortgaged property is sold by the borrowers. Some lenders require the borrowers to repay the loan if the borrowers cease living in the relevant property for a certain period of time.
When used wisely reverse mortgages can be of enormous benefit to retirees who are often "asset rich but cash poor". The benefits will often outweigh the costs and compounding interest. Often the only alternative for some retirees is to sell the family home then purchase a cheaper home. The selling costs and stamp duty costs of a new purchase typically run into tens of thousands of dollars. In a growing city like Perth one would reasonably expect property values to rise over time so if the retirees can stay in their traditional family home their tax free capital growth on that home is likely to be much higher than the capital growth of a cheaper home.
Different lenders and finance brokers often describe their various reverse mortgage products with a variety of marketing terms such as "Seniors Equity Release Home Loan", "Seniors Access Home Loan", "Easy Living Access Loan", Equity Unlock Loan for Seniors", "Loan for Living" and "Equity Release Finance".
Reverse Mortgages | Bank Guarantee Certificates
Useful link www.sequal.com.au Senior Australians Equity Release Association.
ASIC publishes useful articles on reverse mortgages and provides a reverse mortgage calculator that can be accessed via the internet.
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