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Download your free copy of ASIC's independent guide to reverse mortgages and other equity release products: Thinking of using the equity in your home?  Or order your copy by calling ASIC's infoline on 1300 300 630.  Audio available soonUse FIDO's reverse mortgage calculator |
| Roberta makes it work for her Roberta is a widow. She decides to take out a reverse mortgage, which she receives as regular payments so that she can supplement her pension. The older she gets the more she is entitled to borrow. By the time she dies, most of the proceeds from the sale of her house must be used to repay her debt, but there is still a little left over for her beneficiaries. Eileen and Samuel discover some nasty pitfalls Eileen and Samuel own their house but rely on the pension for income. They have enough cash to live on but decide to take out a reverse mortgage for $80,000 to renovate their bathroom, buy a car and give their daughter $20,000. In the short term, their pension is reduced because the car is assessed as an asset and because of the amount of cash they have given their daughter. Fifteen years later Samuel dies and Eileen, whose health is also poor, decides she cannot look after herself anymore and needs aged care accommodation. Unfortunately, she doesn't have enough cash left after she sells the house and pays off her debt to pay for the accommodation she would like. |
| Number of years since Kim took out the loan | Here's what Kim's home may be worth if housing values increase 3.5% every year | Here's what Kim or Kim's estate could owe if the interest rate is 8.32%* | And here's what Kim could owe if the interest rate increases to 11%** after the first 2 years |
| 5 years | $475,000 | $154,000 | $167,000 |
| 10 years | $564,000 | $234,000 | $290,000 |
| 15 years | $670,000 | $356,000 | $502,000 |
| 20 years | $796,000 | $540,000 | $869,000 Exceeds value of home, 'negative equity' |
| Reverse mortgage checklist |
| ABOUT YOU | |
| Current and future financial needs you should think about |
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| What are your other options? |
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| ABOUT THE LOAN | |
| What are the age and eligibility criteria for the loan? | With most loans, you should be able to borrow more, the older you are. For couples, the amount you can borrow depends on the youngest borrower's age. Some lenders may be choosy about the properties they take. |
| Will there be money left over? | Some products allow you to protect a fixed percentage of the value of the property so it cannot be used to repay the debt. |
| Can the loan exceed the property value? | We strongly recommend you only take a reverse mortgage that has a no negative equity guarantee, otherwise you could end up owing more than your house is worth. |
| Has the property been independently valued? | The valuation of your home will determine how much money you get so make sure it's an independent valuation. |
| What about rates, insurance and maintenance? | Most products require you to pay rates, maintain and insure your home. Maintenance can be costly over time. And as you get older, you may find it difficult to maintain the property in the same way you had done previously. |
| INTERESTS AND COSTS | |
| What are the costs? | Costs can include establishment and ongoing fees, and home valuation costs. If these fees are added to your loan, interest is charged on them, which compounds (or builds up over time). |
| What is the interest rate? | Interests rates are generally higher than for traditional home loans and differ between products. |
| Fixed or variable interest rate? | A fixed rate usually costs more and a higher fee may apply if you pay off the loan early. If you are worried that interest rates will increase, you may wish to lock in a more favourable long term rate. |
| ABOUT PAYMENTS | |
| How are the funds paid? | Funds can be paid as an upfront lump sum, regular monthly payments, a line of credit, or a combination of these options. Check which options are available. |
| What are the pros and cons of different payment options? | You may be able to slow the growth of your debt by choosing regular payments instead of a lump sum, because you pay interest only on the amount you've actually withdrawn. Check with your financial adviser which option is best for you. Use FIDO's reverse mortgage calculator to help with your planning. |
| What will be the impact on your government pension? | Payments can affect your pension entitlements. For more information talk to Centrelink Financial Information Service  or the Department of Veterans' Affairs . |
| ABOUT YOUR LENDER | |
| Is the lender financially sound and properly regulated? | If not, there may be an increased risk that the lender may not be able to meet any long term promise to make payments. FIDO suggests you use a bank, building society, credit union or other prudentially regulated institution. These institutions are specially regulated to make sure that, under all reasonable circumstances, they can meet their financial promises. |
| Are there safeguards if something goes wrong? | Ask the lender whether they are a member of an external dispute resolution scheme. See a list of dispute resolution schemes. |
| ABOUT YOUR RIGHTS | |
| Can you cancel? | Check if there is a cooling off period. |
| What if you breach the terms and conditions? | You may lose key rights such as the no negative equity guarantee and the lender may have the right to evict you. Get a lawyer to check the fine print. |
| What if you want to move home? | Check if the loan is portable. |
| Can the lender control what you do with your home? | You are often required to live in your home and maintain it to a standard set by the lender. You may also need the lender's ok to sell, lease, renovate or vacate your home, or to have someone else live with you in your home. |
| What if a resident in the home is not a borrower on the contract? | Only a few products protect the rights of resident non-borrowers. In other cases, they may have no rights when you die or leave the property. |
Try FIDO's reverse mortgage calculator All we have is this house - report FIDO has more information about equity release products
