Reverse mortgage myths busted

Reverse mortgage myths busted


With rising living costs and limited age pension incomes many people who own their own homes are taking advantage of reverse mortgages to better manage their retirement.


This is sponsored content for Heartland Seniors Finance.

With rising living costs and limited age pension incomes, many people who own their own homes are taking advantage of the benefits of reverse mortgages as a way to better manage their retirement years.

But there are a few misconceptions around the product that means others who could be using the option to live a more comfortable retirement are too afraid to take the step.

Jeff Murray, Head of Distribution at Heartland Seniors Finance, said that with the right advice and approach, reverse mortgages can provide an effective way for people to help finance their retirement, and provide the peace of mind that comes with knowing money is there if needed.

He said that in fact one of the key appeals with reverse mortgages was the customer protections that are guaranteed by the strict regulations surrounding them.

"Reverse mortgages are arguably the most heavily regulated consumer finance product in Australia," he said. "But there are some common myths that persist, mainly around the belief that the lender owns your home, that you're going to leave debt to your children, and that you are committing to regular repayments. These are all incorrect."

Myth 1: The lender owns your home.

With a reverse mortgage your home remains the place you live in for as long as you choose.

"You retain ownership of your home at all times which means you are benefiting from any potential increase in property value," said Mr Murray. "You won't owe more than the net sale proceeds of your home and you can keep your home for as long as you choose.*

"Just like a standard home loan, the lender takes a mortgage over the property."

Myth 2: You will leave debt to your children.

Part of the regulation around reverse mortgages is something called a No Negative Equity Guarantee which means the amount required to repay the loan will never exceed the net sale proceeds of the property.*

"The No Negative Equity Guarantee is enshrined in law to protect borrowers from ever owing more than what the property is sold for," said Mr Murray.

Another level of protection available is through an Equity Protection Option which allows you to choose to protect a percentage of the net sale proceeds of your home. When your loan is repaid, you or your estate are guaranteed to receive any chosen Equity Protection percentage.

"For example, if you choose to protect 20 per cent of your home and the net sale proceeds when you sell are $500,000, the maximum you or your estate would be required to pay us would be $400,000, even if the loan balance on your loan was higher than this amount," said Mr Murray.*

Myth 3: You must make regular repayments

While you are free to make repayments on your reverse mortgage at any time, there is no requirement to do so.

"The interest is capitalised which means it's added to the balance of the loan. The loan plus interest is only due to be repaid when you leave the property. That's most commonly when it's sold," said Mr Murray.

"But if you would like to pay off some of the loan you can, it's voluntary. You have that flexibility to pay in part or in full at any time."

Mr Murray said when considering a reverse mortgage, as with entering any loan agreement, it's important to speak to your own legal and financial advisers, as well as your family, to be certain you understand the implications for your financial future.

"You want to feel confident about the loan agreement so you'll have complete peace of mind," Mr Murray said.

*Subject to complying with the terms and conditions of the Heartland Reverse Mortgage, you will not owe more than the net sale proceeds of your home and you can keep your home for as long as you choose. There is no assurance that property values will increase over time, and property values may also decline.

Every situation is different. This information has been prepared without taking into account your needs, objectives, or financial situation. If you are considering a reverse mortgage, Heartland encourages you to understand how it may affect your personal circumstances - talk to friends and family, speak to professionals, and use the resources and tools Heartland has available.

Loans are subject to loan approval criteria. Terms, conditions, fees and charges apply. Credit provided by ASF Custodians Pty Ltd (ACN 106 822 780 / Australian Credit Licence No. 386781).

This is sponsored content for Heartland Seniors Finance.