|
There are three forms of Equity Release products available to seniors in Australia, a Reverse Mortgage, Accommodation Bond Loan or a Home Reversion Scheme.
Reverse Mortgage
A reverse mortgage is usually structured as a loan secured with a first mortgage on residential property. Unlike a traditional mortgage, no repayments are due until all borrowers permanently vacate the property (hence the term "lifetime mortgage"). This will usually be when all borrowers have passed away, moved into long term aged care, or the property has been sold, at which point the "Provider" will seek repayment of the funds owing.
Funds released via the loan can be taken as a single lump sum, a series of instalments or drawn down under a "line of credit" facility. The options available will vary with each Provider. Whilst Providers will accept voluntary repayments, no regular repayments are required.
No Repayments
Because there are no repayments due whilst the borrowers are living in the property, interest and fees are added to the loan balance during this period. This is often referred to as the "capitalisation" or "compounding" of interest and fees to the loan balance. Interest will usually not be charged until funds have actually been advanced by the Provider to the borrower.
When the loan and all interest and fees are due for repayment, the borrowers or their estate will typically have the option of repaying the loan out in full and retaining the property, or selling the property and repaying the Provider from the proceeds of the sale.
top
No Negative Equity Guarantee
A key feature and a requirement by SEQUAL of its members, is that the total loan balance repayable by the borrowers cannot exceed the net realisable value of the property at the time the loan is repaid. This is commonly referred to as a "No Negative Equity Guarantee". This means that provided the terms and conditions of the loan have been met, the Provider cannot seek additional repayment from the borrowers personally, or from their estate, if the value of the property is insufficient to fully repay the loan.
In addition, this guarantee ensures that all borrowers have the right to live in the property for as long as they choose, even in the event that the total loan balance exceeded the property value.
These are contractual obligations given by the Provider to you, the borrower, and will be subject to the terms and conditions detailed in the loan documentation. These will vary with each Provider, but SEQUAL requires its members to clearly state these terms and conditions in the loan documentation. You should ask your solicitor to go through these terms and conditions with you should you proceed with an Equity Release loan.
Loan Amount
The amount of money that you can borrow will vary with each Provider. It will usually be based on the age of the youngest borrower and the current market value of your property, together with the minimum and maximum loan amounts that each Provider allows. The maximum amount you can borrow will usually be expressed as a Loan to Value ratio (LVR) being the available loan amount as a proportion of your property’s appraised value. The LVR usually increases with age.
top
Interest Rate
As with traditional mortgages, Providers will offer their loan with a variable rate of interest, a fixed rate of interest or a combination of both. Again, the rates and options available will vary with each Provider.
top
Loan Portability
Some Providers offer a ‘portability’ option, which means that should you wish to move home, you can transfer the loan to the new property. There may be some conditions and fees attached to this option and, depending on the value of the new property, you may be required to repay a portion of the loan.
top
Property Protection
Some Providers offer the ability to protect a portion of the future realisable value of the property, in effect ensuring that a fixed percentage of this future property value will be available to you or your estate, irrespective of the loan balance at that time. Again this option may attract fees, and will be subject to terms and conditions.
top
Terms and Conditions
All Providers will make the loan available to you subject to a set of terms and conditions. This is an important document that you should read thoroughly, and seek advice on from your solicitor.
These may include, but not be limited to, requirements that you as the borrower will:
- adequately maintain the property
- maintain an adequate level of buildings insurance on the property
- notify the Provider if there has been change to the structure of the property
- notify the Provider if any additional permanent residents have moved into the property.
These are all designed to protect the Provider as first mortgagee and to protect the future realisable value of the property. Check with the Provider what their specific terms and conditions are.
Accommodation Bond Loans
An accommodation bond loan is designed to cover the cost of moving into aged care.
Loan Amount
No Ongoing Monthly Fees or Charges
No Negative Equity Guarantee
Interest Charges
Eligibility
Terms and Conditions
Loan Amount
If you are over 70 years of age you can borrow up to 50% of the agreed value of
your home over a three year term or 40% of the agreed value of your home
over a five year term.
top
No Ongoing Monthly Fees or ChargesAccommodation Bonds have no ongoing monthly fees or charges.
No Negative Equity Guarantee
Even though you can borrow up to 50% of the value of the property you
will receive a no negative equity guarantee. This means that whatever
happens to interest rates or house prices the amount you owe on your
loan can never exceed the value of the property as long as you comply
with the loan's standard terms.
top
Interest Charges
Providers will offer their loan with a
variable rate of interest, a fixed rate of interest or a combination of
both. The rates and options available will vary with each
Provider.
top
Eligibility
- You must be aged 70 or over. There is no maximum age limit.
- You must own the property. You may be the sole owner or share ownership with your partner.
- You must not sill reside in the home. You may, however, rent the
house out or have family or friends live in it in your absence. If
rented, any formal lease agreement must be for no more than 12 months in
duration and may not take the tenant over the expiry date of the 3 or 5
year term.
- The location of your home is also an important factor that the provider will take into account when considering your loan application.
Terms and Conditions
All Providers will make the loan available to you subject to a set of
terms and conditions. This is an important document that you should read
thoroughly, and seek advice on from your solicitor.
These may include, but not be limited to, requirements that you as the borrower will:
- adequately maintain the property
- maintain an adequate level of buildings insurance on the property
- notify the Provider if there has been change to the structure of the property
- notify the Provider if any additional permanent residents have moved into the property.
These are all designed to protect the Provider as first mortgagee and to protect the future realisable value of the property. Check with the Provider what their specific terms and conditions are.
Home Reversion Schemes
A Home Reversion Scheme allows you to sell a proportion of equity in your
home while you still live there.
Key Features of Home Reversion Schemes
The borrower receives a lump sum payment in
exchange for an agreed capped percentage of your home when it is sold in the future.
The cash amount you are paid is less than the current value of this capped (maximum) percentage, because you are entitled to live in your property for the rest of your life.
You can access up to 65% of the equity in your home.
You must be aged 60 and over. If you're part of a couple, the younger must be at least 60.
You must own your home outright, or use some of the funds provided through the Home Reversion Scheme to pay out your existing mortgage.
Currently your home must be situated in certain postcodes within Melbourne and Sydney.
As a general rule, your home needs to be free standing. Other property types are subject to approval.
To find out more SIMPLY:
Download a Homesafe Solutions Brochure Now
top
|
