Eliminating the taboo around reverse mortgages

At the crossroads of retirement, many people want to live a little more than they have during their working life, but not everyone has the money in cash to do so.

More than 62 per cent of over-65s rely on some form of pension, but that’s still not enough to afford a comfortable retirement, according to the Australian Institute of Health and Welfare. In fact, the Australian pension will see most living below the poverty line without additional income sources.

Most over-60s today know they will need to use the money tied up in their family home to fund their retirement at some point. That leaves many over-60s with two choices:

1. Downsize and sell their home to buy a less expensive property, freeing up cash to fund their retirement costs of living, holidays, lifestyle, and aged care.
2. Consider using a reverse mortgage and borrow a lump sum, to draw down as you need it, or setup as an income stream (or all three combined!) and release home equity while still living in your home, to fund ongoing retirement income or one-off expenses.

So, today we’re taking a look at reverse mortgages, the role they play in retirement funding, how the products work, and more specifically, the Heartland Reverse Mortgage product, as they have changed the game for reverse mortgages. Offering penalty-free loan repayments alongside flexible options for drawdowns, cash reserves, and redraws.

What is a reverse mortgage?

A reverse mortgage is similar to a regular home loan, except it allows Australians over 60 to release some of the equity in their property to boost retirement funding without selling their home. A major advantage of taking out a reverse mortgage with Heartland is that you can continue to own and live in your home while enjoying your community for as long as you choose.

According to The Global Equity Release Roundtable 2020 survey report, there has been an increase in home equity release, as more than $15 billion is currently released globally each year. It’s also expected to exceed an astounding $50 billion by 2031.

Research shows that the most common equity release service in Australia is a reverse mortgage because more than 90 per cent of Australian retirees want to live in their home for as long as possible, making a reverse mortgage an ideal funding enhancement process for retirement.

By choosing a reverse mortgage, you are essentially freeing up cash to use at any stage of retirement that you wouldn’t normally have. But, the biggest role they play in retirement is that you have the comfort to continue living in your own home.

You don’t need to sell your house or downsize if you choose a reverse mortgage. You also don’t need to make regular repayments, as the debt is repaid with the future resale of the property.

Misconceptions surrounding reverse mortgages

There are a few misconceptions that surround reverse mortgages, but Heartland makes sure to provide clear information to all of its customers, around the benefits and key considerations, to ensure you have the facts.

Here are three of the most common misconceptions about reverse mortgages:

Myth 1: The lender owns your home

This is incorrect because a reverse mortgage is like a regular home loan, where the lender takes a mortgage over the property. You will still own and be able to live in your home for as long as you choose.

Myth 2: You will leave debt to your children

This is incorrect because reverse mortgages are heavily regulated by the federal government which requires a ‘no negative equity guarantee’ in place for each loan to protect borrowers from owing more than the net sale proceeds of the property.

Myth 3: You have to make regular payments

This is incorrect, although you are free to make regular payments if you choose to. Because the interest is capitalised, the balance is added to the original loan you take out. As mentioned, the total loan including interest is only due to be repaid when the home is sold or you move out of the property.

The difference with Heartland Reverse Mortgages

The difference between Heartland Reverse Mortgages and other financial institutions is flexibility. With Heartland Reverse Mortgages, you can adapt the loan to suit your needs as you age.

Heartland has structured their reverse mortgage product to allow you to grow your use of it over time, without committing to a large reverse mortgage loan upfront. That flexibility is very attractive to consumers, and has been recognised by comparison site InfoChoice as the Best Reverse Mortgage in 2020.

You can borrow an immediate amount to pay for retirement needs such as entry to aged care or home improvements.  In addition to the traditional lump sum option, you can draw down as little as $300 per month or $625 per quarter as an income stream to supplement your pension income. You can also set aside funds in a cash reserve facility (which has no expiry) to request funds when and as required for future needs.

There’s no need to worry about not having the cash to live out retirement comfortably anymore because Heartland gives you the freedom and flexibility to live your best life. And they have strong protections in place for all borrowers, so you don’t have to worry about losing your house either.

What’s even better is that they partner with Dementia Australia and are 100% committed to Banking and Finance Oath which shows how committed they are to do the right thing by their customers.

With that said, Heartland reverse mortgages give you financial freedom, all while you:

• Remain the owner of your home and benefit from any potential property value increases.
• Don’t make any loan repayment until the end of the loan, which is when you sell your house, move into long-term care, or pass away.
• Can make voluntary repayments if you wish.
• Can apply to access the funds you need, when you need them.
• Even use your investment property or holiday home as security for the loan.

Heartland is flexible with every aspect of a reverse mortgage. Here are some of the ways they showcase their loan flexibility:

Drawdown options

The minimum drawdown for a reverse mortgage initial advance with Heartland is $5,000 –– as opposed to an amount upwards of $50,000 with many other reverse mortgage providers. This particular option is excellent for renovations, buying a new car, or repaying your mortgage.

Regular advance options

An ongoing, automatic advance from your loan for up to ten years! The minimum regular drawdown amounts for advance options are $300 per month, $625 per quarter, or $2,500 annually. This option is ideal for anyone planning to draw on their loan to supplement their income.

Cash reserve option

You can set aside any amount of funds in a cash reserve facility, available to request as and when you need to access your funds in the future. What’s more, if you make a loan repayment, redraw is also available for all new loans.

When you need to access either, the minimum drawdown is $2,500. These options are good for anyone who wants access to funds for an emergency expense, healthcare, or an unplanned home repair. Interest is also only charged on funds once they have been drawn down.

As mentioned earlier, the amount you can borrow depends on your age:

• Age 60: 20 per cent
• Age 65: 25 per cent
• Age 70: 30 per cent
• Age 75: 35 per cent
• Age 80: 40 per cent
• Age 85: 45 per cent
• Age 90: 50 per cent

When it comes to Heartland Reverse Mortgages, it doesn’t matter if you move house because you have the option to apply to transfer your loan to your new home, as long as it meets Heartland’s credit criteria at that time.

Borrower protections

Heartland recognises the importance of protecting you and your home, which is why they offer an equity protection option. Within this option, you can choose to protect up to 50 per cent of the net sale proceeds of your home.

This essentially means that when you repay your loan, Heartland guarantees you will receive that protected percentage, even if the balance on your loan is higher than the unprotected amount. However, choosing this option will reduce the loan amount available by the percentage selected.

Find out more

Heartland has helped more than 22,000 older Australians take advantage of accessing a loan secured by their home to help build a more comfortable retirement. You can download a free reverse mortgage guide that further explains what a reverse mortgage is, how to access your equity, and how reverse mortgages are changing lives.

DISCLAIMER: 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, we encourage 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. 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. Applications 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).
IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.