After the death of the last surviving borrower, beneficiaries will need to repay the outstanding reverse mortgage loan balance within the lender’s required period. This can be up to 12 months. While the home can be sold to repay the loan balance, this is not mandatory. Beneficiaries may elect to keep the family home and either rent it out or occupy it themselves. This will require the beneficiaries to arrange a new loan which will be used to pay out the reverse mortgage loan within the allowed period.

Lenders have different rules should borrowers require a move from the family home into permanent aged care. Some lenders require automatic full repayment of the loan when this occurs. It may require the family home to be sold or the reverse mortgage loan to be paid out by another lender. Other lenders will allow seniors to rent out the family home, with rental income helping to cover the interest charged on the reverse mortgage.

Borrowers should look carefully at the lender’s policy regarding a move into permanent aged care. It may trigger the required full repayment of the loan within an agreed period and this may not be the wish of borrowers or their beneficiaries.

With variable rate reverse mortgage loans, some lenders allow loans to be fully repaid from sale proceeds or inheritance monies with no early repayment penalties. Other lenders do charge an early repayment fee if the loan is voluntarily and fully repaid within periods of 3-5 years. This penalty is often referred to as a Deferred Establishment Fee and is usually calculated on a reducing scale down to zero after the agreed period.

With fixed rate loans, most lenders will also charge “break costs” if the loan is voluntarily discharged prior to the expiration of an agreed fixed rate period, especially when fixed rates have declined since the loan commenced. Some lenders allow seniors to make additional lump sum repayments on a fixed rate loan without penalty e.g. up to 10% of the advanced amount per annum, but all lenders will have different policies on this.

Check your lender’s contract conditions carefully for Deferred Establishment Fee charges and fixed rate “break costs”. As mentioned previously, “break costs” are generally not charged by lenders when fixed rate loans are fully repaid following the death of borrowers or their placement into permanent aged care.

If you sell your home voluntarily and no longer require the loan, the loan must be repaid immediately upon settlement of the sale of your home.

In the event of the death of the last surviving borrower, beneficiaries are allowed periods of up to 12 months to sell the property and repay the loan balance in full. Some lenders also have a requirement that the loan must be fully repaid within an agreed period of borrowers moving into permanent aged care.

All reverse mortgage lenders will have specific terms and conditions in their loan contracts which clearly outline when the loan is to be fully repaid.

Yes. Lenders have website calculators which enable seniors to estimate what the loan balance will increase to over a number of years. These calculators generally do not take into account any monthly interest payments or any lump sum payments you may make in the future, so you will get a “worst case” outcome. Such payments will reduce the rate at which the reverse mortgage loan balance increases.

The level of remaining equity in your home will depend on a number of factors including:

  • how long your reverse mortgage runs for
  • the interest rate charged on your loan
  • the level of future increases in the value of your home
  • whether or not you make any monthly or lump sum repayments
  • whether or not you borrow additional funds later on

This website has a calculator and you can also use the Federal Government’s ASIC website which is called “FIDO”. It can be found at www.fido.gov.au/equityrelease and allows seniors to estimate future scenarios including reverse mortgage loan balances, house values and remaining equity values. Different interest rates and house value growth rates can be inserted to show different potential outcomes.

A reverse mortgage is simply a loan against the security property. As the borrower does not sell any portion of the property to the lender, the borrower receives the benefit of any future increase in the property’s value.

Yes. All lenders will state in their loan contracts that they require you to adequately insure your home and keep it in good condition. If seniors do not adhere to these basic requirements, lenders can exercise their loan default powers and terminate the loan agreement.

Yes, in most cases you can borrow more later on. The maximum amount you can borrow is determined by the age of the younger borrower and by the property value. As you get older and as the property value increases, you can increase the amount borrowed.

Lenders will generally charge an Additional Advance fee and will also probably require an up to date valuation. These fees are payable by the borrower , but will usually be deducted from the additional loan proceeds.

Yes. Lenders will generally allow your reverse mortgage loan to be transferred to another property if you decide to move. Conditions will apply and seniors must consult their lender first. The loan limit must be within the maximum amount allowed on the new property and the new security property must also be acceptable to the lender. If you are downgrading to a smaller home, the loan limit may need to be reduced marginally. The lender will advise you of their requirements which will include a new valuation.

Yes. You are and remain the owner of the property. You are entitled to remain in your home as long as you wish. You can sell the property at any time, but the full loan balance must then be paid out including accrued interest and any “break cost” payable if you are voluntarily terminating a fixed rate contract early.

If the loan is on a variable interest rate, lenders will allow voluntary lump sum partial repayments at any time. With fixed rate loans, limited voluntary lump sum partial repayments can be made, however reverse mortgage loan contracts will usually contain a specific “break cost” clause which generally restricts the borrower’s right to make lump sum repayments of the initial amount borrowed during the fixed rate period. This is particularly the case if fixed rates have fallen since the fixed rate contract commenced. “Break cost” clauses generally give the lender the right to penalise the borrower, but will not tell you the exact amount of the “break cost” to be charged as this can only be calculated at the time of the repayment. If you are considering a fixed rate loan, “break cost” clauses should be carefully discussed with your solicitor prior to proceeding.

Lenders will generally not charge “break costs” when loans are fully repaid following the death of the borrower or placement into permanent aged care.

Yes. Reverse mortgage loan balances will increase over time. Formal monthly repayments are not required, so interest and monthly fees will be added to the loan balance each month. If you choose to make some interest payments each month, the loan balance will not increase as quickly.

No. Lenders do not require regular monthly repayments on reverse mortgage loans. In most instances, lenders will allow interest payments to be made voluntarily if borrowers choose to do so, but this is not a requirement.

Seniors will generally have the following options:

  • the lump sum option : receive all the funds in a single advance at settlement
  • the regular income option : receive a series of monthly payments over an agreed term e.g. $1,000 per month over the next 5 years
  • the cash reserve option: draw funds occasionally as you need them.

Most lenders will allow seniors to mix these options in any combination provided the total amount does not exceed the limit you are entitled to borrow. Interest is only charged on funds that are actually drawn, not on the total approved limit.

No. Unlike conventional mortgage loans and personal loans, reverse mortgage loans do not have set terms. Seniors can generally remain in their homes indefinitely. Reverse mortgage lenders will usually require full repayment of the loan balance on either the sale of the security property or the death of the last surviving borrower, whichever occurs first. Some lenders may also require repayment of the loan if borrowers move into permanent aged care. The loan does not need to be repaid over a set term.

Reverse mortgage lenders generally incorporate a “No Negative Equity” guarantee into their loan contracts. That is, the lender assures the borrower that, if the borrower adheres to the terms of the loan contract, neither the borrower nor the estate can ever owe more than the sale value of the home.

It is unlikely that the loan balance would exceed the value of the home in the future. For example, if you borrowed the maximum loan amount, if you lived longer than expected and if your property value does not increase sufficiently, then you could possibly end up with negative equity. This is unlikely to occur, so most lenders are willing to offer a guarantee.

It is essential that your lender includes a “No Negative Equity” guarantee in the loan contract. Some lenders have guarantees which are subject to certain requirements. You should be aware of any requirements or conditions which may negate the guarantee and discuss these with your solicitor.

What our customers say about us

Thanks for all your help and for making it so easy for me. Life will be so different now.

Jan Vincent
Montrose, VICTORIA

Thank you for your time on the phone yesterday and copying me into the below email.
I just wanted to take the time to say that I have never seen such a comprehensive email provided to clients by a Broker before. Very clear and detailed.
I hope it’s ok that I hold onto your details to refer to clients who may need assistance.
Kind Regards,

Shannon Oatley
Director & Licensed Conveyancer
Property Conveyancing Group, VICTORIA

We have found Barry Le Brocq of Melbourne Mortgage Finance to be very patient, caring and diligent in achieving a successful outcome to our refinancing requirement. We have no hesitation in recommending his services to others.

Don & Christine Perrett
Leongatha, VICTORIA

Many thanks Barry for the exceptional service that you have provided. We will most certainly be recommending you to our daughter (Bank of Melbourne branch manager) for any future customers who need a reverse mortgage loan.

Paul & Barb Spark
Somerville VICTORIA

 

LENDING UPDATE 14.06.19

  • LIVING EXPENSES ARE NOW A KEY ISSUE
  • COMPREHENSIVE CREDIT REPORTING NOW IN EFFECT
  • INVESTMENT LOANS AT OWNER-OCCUPIER INTEREST RATES
  • REVERSE MORTGAGE LOANS FOR SENIORS OVER 60
READ MORE

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