Could I lose my home?
If you choose a reverse mortgage product and continue to maintain your home, you can remain in your home for life.
If you chose another equity release product such as a shared sale agreement from a SEQUAL member, you are also guaranteed the right to remain for life, even without any maintenance of the home.
Other equity release products from non-SEQUAL members may not be able to match this level of certainty and protection.
SEQUAL believes the right to remain in the home for life must be the foundation of any equity release product. Providers must abide by this principle to qualify for SEQUAL membership, so look for our logo on any information you are given.
How much wealth can I unlock?
Your age, the value of your home and the type of equity release product you choose will determine how much equity you can access.
With a reverse mortgage, the maximum amount you can borrow typically starts at about 15% of the value of your home for those aged 60, up to 45% for a customer aged 90. The borrower can choose to access all the equity up front as a cash lump sum, or as income over many years.
Shared sale agreements can provide a cash lump sum of between $25,000 and $1,000,000, depending on the value of your home and the percentage of future sale proceeds you decide to sell. This percentage is capped at 65%, which means your estate is assured of keeping a substantial amount of equity from your home.
Is the equity release industry regulated?
Yes. In fact, the level of regulation and protection for Equity Release customers is higher than most financial products.
The Equity Release customer has all the usual protections that apply to borrowers and homeowners, including the National Consumer Credit Code.
In addition, laws were introduced in 2012 specifically to boost protection for reverse mortgage customers. These enshrined in law many of the voluntary safeguards SEQUAL had developed for its members and customers over the previous decade.
Specifically, providers must show that potential customers have received independent legal advice before entering into an agreement or Contract.
It is also a legal requirement for reverse mortgage customers, that they are given detailed information about the product and how the amount owing can be expected to change over time, using a calculation tool developed by the Australian Securities and Investments Commission. The final amount owing under a reverse mortgage will vary, depending on how long the customer needs their home (usually for life, with repayment made from the customer’s estate), and changes in interest rates. Regardless of all these factors, reverse mortgage customers have the legal protection of a ‘no-negative-equity guarantee’. This means the final amount owing cannot be more than the sale proceeds of the home in any circumstances.
Shared sale agreements are also tightly regulated.
Do I need to make repayments?
No, with an Equity Release product offerred by a SEQUAL member, there are no repayments necessary whilst your arrangement remains in place.
How much does it cost to access equity?
With a reverse mortgage, the cost is primarily the interest rate on the loan. Across the industry, reverse mortgage rates are typically between 1% and 2% above the standard variable home loan rate of the major banks. The premium reflects the higher risk to the lender of a mortgage designed to never receive payments of principal or interest. The interest rate also includes a component for the effective cost of the no-negative-equity guarantee.
Reverse mortgages are available with a fixed or variable interest rate. Fixed rates mean certainty, but they can also mean substantial fees if market rates fall and the customer wishes to end the mortgage earlier than expected.
Equity release products also typically have application fees and a cost for advice from your own solicitor, which is required before any contract is signed. Legal costs generally range between $200 and $500, and can be paid from the equity release proceeds.
Can I use the funds released for any purpose?
Yes. Wealth accessed through equity release can be used for any purpose, including supplemental income for retirement, medical care, nursing and aged care services. Some customers use equity release to provide financial assistance to children and other family members. Frequent uses include travel and lifestyle activities for a more enjoyable retirement.
What happens if the value of my home falls?
Nothing. Equity release products provided by SEQUAL members are unaffected by any decrease in the value of your home.
Will equity release affect my Age Pension?
Your home is not included in the Assets Test for the Age Pension, but cash in the bank is counted. This means equity release may affect your entitlements, although this is by no means a certainty. SEQUAL members recommend you seek financial advice before entering into an equity release contract to obtain clear advice on how it might affect your financial situation.
Should I discuss it first with my family?
We recommend you talk with your family about equity release, and any product provider should be happy to engage in discussions with family members of your choosing.
Do I still have the same rights as a homeowner?
Yes. Your rights as a homeowner are unchanged with any SEQUAL-member equity release product. For example, you could lease part or all of your home and keep all the rent. Some customers have used equity release to help meet the costs of moving into aged care, and keep their home and rent it out.