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.
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.
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.
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):
If an income is required: (for example, to supplement an account-based superannuation pension or the aged pension)
Making your first big step towards buying a home? It's crucial to be across your mortgage options as a first homebuyer.
Opting for a variable interest rate on your home loan means it'll fluctuate as the market moves throughout your repayment term.
On the other hand, fixing your rate locks it in for a pre-defined period. This can bring with it greater certainty around your budget.
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A guarantor essentially acts as a safety net for your lender, as they sign onto your loan to agree to pay it off should you become unable to do so.
Purchasing a property as an investment brings with it different specifications from a lender. It's crucial to know what your options are.
Businesses big or small may wish to purchase a property for commercial purposes, which are also different from a standard loan.
Your home loan may give you an interest-only option, which allows you to exclusively pay interest on your loan for a set period.
Just because your finances may be slightly more complicated as a self-employed individual doesn't mean you can't take out a home loan.
Some lenders may allow you to apply for a home loan with alternative documents, such as tax returns, BAS and ABN registration.
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
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
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
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
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
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
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.
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