Cash-strapped home-owners aged 65-plus now have the
option of taking out a ‘reverse mortgage’, that is,
the lender gives you money in exchange for part of your
equity in your home.
Who offers these loans?
At present, only two mainstream lenders offer reverse
mortgages – the Commonwealth and St George banks –
as well as the West Australian-based Police and Nurses
The Commonwealth Bank’s Equity Unlock Loan for
Seniors is offered on a sliding scale, from a maximum of
$150,000 to those aged 65-69 (or 20% of the value of
their property, whichever is lower) to up to $225,000 to
those aged 80-plus (or 35% of the value of the
property). CBA also gives borrowers an option of taking
the money as a lump sum or as a regular payment to
supplement their income. Costs include an up-front fee
of $950 and a monthly service fee of $12.
The St George Senior Access Loan (capped at $100,000)
has an up-front fee of $750 and a monthly service fee of
The higher CBA fees equate to an extra $1,000 over 10
years for a $100,000 loan.
What are the benefits of reverse mortgages?
People are living longer and want to maintain a good
quality of life – cashing in part of your home may
mean the difference between poverty and a comfortable
lifestyle. Also, the interest and fees are rolled into
the loan, which does not need to be repaid until you die
or sell your home.
What are the potential pitfalls?
These loans are structured so that interest is
charged on the interest. Thus, the longer the term of
the loan, the bigger the amount of interest charged on
the interest accrued on the original loan amount. This
means that the loan could end up being more than the
value of the house. (If this occurs, your heirs are not
liable for any payment – the bank bears the loss.
However, family members who hoped to inherit your assets
may be disappointed.)
It is also possible that a loan of more than $40,000
could have an impact on the pension payments to
pensioners and part-pensioners.
Potential borrowers are advised to obtain independent
legal and financial advice, and to tell family and
potential beneficiaries about the loan.