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Reverse Mortgage Calculator

Find out how much of your home equity you could unlock with Savvy’s free reverse mortgage calculator

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, updated on August 7th, 2023       

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Unlocking the equity you’ve built in your home by taking out a reverse mortgage is one way of adding to your retirement income.  Find out what reverse mortgages are, how much they cost and the pros and cons involved in this Savvy guide to reverse mortgages.

Using the reverse mortgage repayment calculator

The reverse mortgage loan calculator allows you to change several variables to show how much of your home equity you can unlock and how a reverse mortgage changes over the years. 

You’ll require several pieces of information before you use the reverse mortgage loan calculator, such as the current value of your home, the interest rate of the reverse mortgage you’re considering and an estimate of how quickly property values are rising in your area (expressed as a percentage).

As this reverse mortgage loan calculator relies on several variables and an estimate of future property value growth, it’s highly recommended that you seek professional financial advice to work through all the financial scenarios the calculator can provide.

To use this free reverse mortgage repayment calculator, fill in the required information in the boxes in Steps 1, 2 and 3.  Use the blue arrow boxes to select from a number of variables, such as the payment options you could receive.  Choose between receiving your equity as a lump sum, in monthly repayments or a combination of the two.

In Step 3, enter an estimate of the property growth expected for your property in your area.  Consult your professional financial advisor to provide you with an estimated figure which is appropriate for your particular area and home situation.  Your accountant or financial planner should also be able to assist you to understand how the calculator can assist you to plan your financial future.

What is a reverse mortgage and how do they work?

A reverse mortgage is a financial product aimed at older Australians which allows them to access the equity they’ve built in their home after retirement. 

Reverse mortgages work by providing retirees with either a lump sum or regular monthly payments (or a combination of both these options) secured by the property.  The variable rate loan is paid down when the property is eventually sold, either by the retiree or by their estate heirs.  Alternatively, heirs to the estate can choose to retain the property and pay off the loan using other funds.  Unlike standard home loans, reverse mortgages don’t have to be paid down over time, with the entire debt able to be paid off in one hit once the property is sold.

The retirees must live in the property which has a reverse mortgage on it and are responsible for maintenance and insurance.  If the borrowers are no longer able to remain in the home (for instance, if health issues force the borrower to move into a retirement home), the property is eventually sold and the loan is paid off.

What are the alternatives to a reverse mortgage?

There are many other ways of utilising home loan equity if you are aged over 60.  The best option will depend on personal circumstances such as the borrower’s age, income source, the reasons that additional finance is required and whether a lump sum or a regular income is required.  There are alternative home loan products for pensioners.

If a lump sum is required: (for example, for home renovations, the purchase of a vehicle, caravan or RV):

  • a home loan refinance with a cash-out option which can be used for the caravan or RV purchase
  • a home loan top-up allows an existing mortgage to be increased, with the additional sum either taken in cash or paid directly to the vehicle dealer if applicable
  • a second mortgage using home equity as security could also provide a cash lump sum for renovations or vehicle purchases
  • asset finance to purchase or lease a vehicle over several years, which you can do right here with Savvy
  • a personal loan (either secured or unsecured) could be used for a smaller one-off purchase

If an income is required: (for example, to supplement an account-based superannuation pension or the aged pension)

  • a home equity line of credit operates a bit like a credit card: you can withdraw money up to a set limit and you’re only charged interest on the amount you withdraw. This can be used to supplement an aged pension when retirement income is paid only annually or bi-annually (such as dividend income from shares).
  • the Home Equity Access Scheme (previously known as the Pension Loan Scheme) is a government scheme which allows pension-aged Australians to access the equity in their property through a fortnightly income stream. Interest is charged on the loan and, as of January 2022, the rate is 3.95%.  The loan can either be paid off like standard debt or paid off once the property is sold.

Pros and cons of taking out a reverse mortgage

PROS

Allows access to your home equity after retirement

A reverse mortgage allows you to tap into your home equity and use that money either in a lump sum, as a regular income stream or a combination of both these options

Improve your retirement lifestyle

If you’re currently struggling to live on the aged pension, a reverse mortgage can help you to improve your retirement lifestyle by using the equity you’ve built up in your home during your earning years

If house prices fall you are protected

Reverse mortgages come with a ‘no negative equity guarantee’, which means that if you are towards the end of your reverse mortgage loan period and house prices fall, you’re guaranteed that you won’t end up owing more than your home is worth

No loan repayments required

Since reverse mortgages are repaid upon the sale of the property, no loan repayments are required during the loan period, so you no longer have to worry about meeting strict instalment deadlines

CONS

High interest rates and fees

Reverse mortgages typically have an interest rate which is substantially higher than average home loan mortgage rates.  For example, in February 2022, when home loans were available for between 1.9% p.a. and 3.5% p.a., reverse mortgages were being offered for between 4.95% p.a. and 7% p.a.  Account establishment charges for reverse mortgages can be as high as $1,500, with additional account-keeping fees of $5 – $15 a month also charged

Need to pay mortgage insurance

Because of the guarantees offered by reverse mortgages, many lenders require mortgage insurance to cover their costs in case they make a financial loss.  This insurance cost can be ongoing and can amount to thousands of dollars

Reduces the inheritance to your children

If you have a reverse mortgage on your home and leave it to your children in your will, they’ll either have to sell the property or pay off the reverse mortgage when they inherit it.  If they’re unable to pay off the loan through other means, they won’t be able to keep the family property.

Locks you into living in your home

A reverse mortgage can only be in place while you are living in your home.  If you become ill or are required to move into a nursing home, the loan will have to be repaid (usually within 6 months).  This means you won’t be able to move into a nursing home and rent out your home to get a rental income

Frequently asked questions about reverse mortgages

Are reverse mortgage interest rates fixed or variable?

Reverse mortgages are variable rate loans that can come with all the flexibility of variable rate loans, such as an offset account and the ability to make repayments if you choose to pay down the principal sum you borrow.  This may be a relevant option for those borrowers who are in their 80s, still have an income from superannuation and wish to reduce their reverse mortgage to leave more inheritance equity to their children.

Do you have to be retired to get a reverse mortgage?

No – you don’t have to be fully retired, but most lenders have a minimum age limit of 60 years to be considered for a reverse mortgage.  The older you are when applying for a reverse mortgage, the more of your home equity you’ll be able to access.

Do I have to own my home completely to get a reverse mortgage?

No – you don’t have to have paid off your home loan completely, but you will require a substantial amount of existing home equity.  A lender may also make it a condition that you use part of the lump sum payout from a reverse mortgage to clear off your original home loan.

Who offers reverse mortgages in Australia?

After the findings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry were published in February 2019, most of the major banks stopped offering reverse mortgages.  In 2022 most reverse mortgages are offered by specialist online lenders and credit unions.

Will a reverse mortgage affect my Centrelink aged pension?

Yes – all income you receive contributes towards the income thresholds to receive a Centrelink aged pension.  For this reason, it is vital to get independent financial advice from a trusted accountant or financial planner before deciding to take out a reverse mortgage.

Can I renovate my home when I have a reverse mortgage?

Yes – however, some lenders will specify that you must notify them and seek permission before making any renovations or improvements to the property.  This is because the reverse mortgage is based on the value of your home, so a lender will want to know if you’re planning to do anything that will affect the sale value of your property.

If I have a reverse mortgage and I pass away, will my spouse still be able to live in our house?

This will depend on whether both you and your spouse are listed on the loan agreement (which you should both be if you are living as a married couple).  Reverse mortgages come with guarantees that all named persons on the loan agreement can continue living in the property if one of the couple passes away.  However, if the name of only one person in a couple is on the loan agreement, the lender could ask for the property to be sold if that one borrower dies.

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