Your Finances

Reverse mortgages

Reverse mortgages are being promoted to seniors by financial institutions as an easy means of borrowing money against the owners’ home. The owner continues to live in the home.

These loans allow people to borrow cash against the value of their home and usually do not require regular repayments until the owner leaves the home by moving into care, sells the home or dies. When the loan ends the person or their estate must repay what is owing usually out of the proceeds of the sale of the home.

Fees and interest are added to the loan balance. Terms and conditions apply to the loan about home maintenance and repairs to a standard set by the lender which some people may find difficult to meet as they get older.

There is a risk that the amount of the loan may exceed the value of the home and this is known as 'negative equity' which can cause serious difficulties for some people.

Some seniors find reverse mortgages attractive and useful. However, these financial arrangements need very careful consideration and individual advice before any decision is made.

The Australian Securities and Investment Commission provides useful information on reverse mortgages.

Further useful information on managing money can be found on their money management page, or through the Understanding Money government website.