What is a reverse mortgage?

Most Australians dream about retirement. What they’ll do, where they’ll go, having more time with family and doing the things they love. For some people, however, this dream becomes a nightmare. The cost of living keeps going up, superannuation balances diminish, and the Age Pension doesn’t adequately provide for a comfortable retirement.


Retired Australian homeowners have the opportunity to tap the savings they’ve accumulated in their home using a reverse mortgage. It’s an equity release product that allows you to release some of the accrued value – or equity – built up in your home. You can use your home equity as an income stream or take it as a lump sum. Alternatively, you can do both.

The purpose of taking out a reverse mortgage loan is to access the savings in your home without needing to sell it. That way, your home can be both the best place to live and the right way to fund your retirement. See how our reverse mortgage, the Household Loan, could improve your retirement.

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How does a reverse mortgage work?

A reverse mortgage allows you to access the equity in your home through a loan facility that doesn’t require repayment until you vacate the property.


The amount you can borrow is a function of your age and the value of your home. The older you are, the more you can borrow. The Loan to Value ratio – or LVR – increases by 1% for each year older than 60.


As a guide, if you’re aged 60, the maximum amount you can borrow is 15% of the value of your home and if you’re aged 75, the maximum amount you could borrow would be 30%.

How do people use their reverse mortgage loan?

Our customers have approached us with a diverse range of needs. These have included:

  • Setting up a regular income facility
  • Refinancing an existing mortgage
  • Renovating or modifying their home to ensure it’s safe and comfortable for retirement
  • Covering unexpected medical expenses
  • Buying a new car
  • Helping children or grandchildren with first home buyer’s deposits or educational expenses
  • Funding in-home care expenses
  • Transitioning to residential aged care.

We find a lot of people simply like the security that comes from having a contingency fund for those unexpected expenses that can crop up from time to time.

Get more from retirement with a reverse mortgage

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Live

Renovate your home or help fund your transport and travel.

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Top Up

Increase your super, investments or contingency funds.

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Refinance

Refinance your existing mortgage (choose whether or not to make repayments).

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Care

Fund your medical expenses, in-home care or aged care requirements.

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Give

Help your family with funding a home deposit or education expenses.

Reverse Mortgage Interest Calculation

How does interest work on a reverse mortgage? Accessing the savings in your home using a reverse mortgage will reduce the amount of equity you have in your home over time.


Because regular repayments are not required, the interest added to the loan balance compounds over time. This means you pay interest on your interest. Over time, the amount you owe the lender will increase. The longer the term of your reverse mortgage, the more the interest compounds.


Alternatively, Household Capital offers an ‘interest only’ facility, where you can make regular payments so that at the end of the term, only the amount you borrow is repayable.


See our current reverse mortgage lending interest rate.

5.15%
Our Variable rate
5.21%
Comparison rate*

The central benefits of using a reverse mortgage to improve your retirement funding are:

  • Increase your retirement income
  • Improve your retirement lifestyle
  • Remain living in your own home

Enjoy the retirement you’ve worked hard for.

Your loan is generally repaid from the future sale of your home. This may occur if you downsize later in retirement or move into aged care. Alternatively, the loan will be paid from the proceeds of your estate.

Of course, if you find yourself able to repay the loan earlier, you can do so.

There are consumer protections for anyone taking out a reverse mortgage; in fact, they are tightly regulated with inbuilt protections, which include:

  • The ‘No negative equity guarantee’, which means that you are protected by law and cannot end up owing lenders more than your home is worth
  • You remain the owner of your home and the title remains in your name
  • You can stay in your home for as long as you want or able to.

A number of banks provide lines of credit or home equity loans that allow homeowners to access the wealth built up in their property.

However, getting credit from the banks has become tougher for retirees since the 2018 Royal Commission into the banking sector. Any form of credit has become less available to retirees who may not have the income to demonstrate they can meet the regular repayments.

The regular repayments required to service a home equity loan or line of credit are likely to negatively impact your cash flow. Each month, you have to find the funds to satisfy the bank. Many retired Australians tell us they feel insecure knowing their home is subject to repossession in the event of a default.

With a reverse mortgage, you don’t need to make regular repayments, although you can choose to do so. And whatever choice you make, there’s no risk of default – you stay in your home for as long as you choose.

See how our reverse mortgage, the Household Loan, could improve your retirement.
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