Reverse Mortgage Frequently Asked Questions
How do I protect the equity in my home?
Under the National Consumer Credit Protection Act Reverse Mortgages (Senior Equity Release Loans) must have a No Negative Equity Guarantee, which means the repayable amount can never exceed the sale value of the property.
Do I still retain the ownership of my home?
Yes, your name remains on title, like any other traditional mortgage. The lender is simply registered as having an interest like your conventional mortgage loan.
What is the acceptable age of the youngest borrower?
60 years, however some lender require the the youngest borrower to be 70 years of age.
Are the borrowers protected under the National Consumer Credit Protection Act?
Yes, the law has been amended to include senior’s equity release loans under the National Consumer Credit Protection Act.
Does my home have to be valued and who organises this?
Yes, your home will have to be valued. This is organised on your behalf and the fees are generally taken out of the loan balance when the loan is settled. Some lenders pay the cost of the valuation.
Is there a limit to how much I can borrow?
Yes, this will depend on the value of your home and the age of the youngest borrower. The loan amount is calculated as a Loan to Valuation Ratio (L.V.R.), which is a percentage of the property value of your home. However some lenders have a set percentage and/or a maximum loan amount. Your RMFS advisor will assist you to select the best loan for your needs.
Will my executor of my will be responsible for my loan upon my death?
Yes, they will have approximately 6 months to refinance the loan; or to sell the home and repay the loan; or to simply pay the loan out in full.
Will my loan ever be greater than the value of my home?
No, because you have a No Negative Equity Guarantee that protects the equity in your home no matter what happens to interest rates, the property market or how long you have the loan. Therefore, you never owe more than the sale value of your home.
When does the loan have to be repaid?
The loan is to be repaid when the home is sold, when the last borrower moves out of the home or upon the death of the last borrower. The beneficiaries will have six months to repay or refinance the loan.
Can I repay the loan early?
Yes, you may repay the loan early if you wish. There is no penalty for partial or complete repayment of your reverse mortgage loan.
What is an aged care extension?
An aged care extension is when the financial institution allows you an extension of up to two years to repay the loan. At the end of that extension you may be given another extension, but either way it gives your family time to make important decisions.
How is interest calculated?
Interest is calculated on the daily balance and capitalised to the loan monthly in arrears.
Do you pay interest on funds that have not been drawn down from the loan?
No, interest is only charged as you draw down money from the loan and use the funds.
How can the funds be dispersed?
Funds can be dispersed as a lump sum payment, monthly or quarterly instalments or a combination of both. You may leave some funds as a cash reserve like a line of credit.