About Equity Release

What is an Equity Release Plan?
Equity Release Plans are loans that have been designed specifically for senior borrowers. These facilities allow people over 60 to convert the equity in their property into cash for any worthwhile purpose. The most popular plan is a Reverse Mortgage. No income is required to qualify. Although interest is charged like any loan, the borrower is not required to make repayments during the life of the loan.

How does The Reverse Mortgage work?
As with most conventional mortgages, the loan is secured by first registered mortgage over the borrower's home, or investment property or holiday home in some cases. The amount that can be released is determined by age and the value of the security property (see How Much can I Borrow for details). Very importantly, the borrower retains full ownership and is able to stay in their home as long as they want. The interest is 'capitalized' -charged back to the loan account - and will compound over time Ie; the balance of the loan will increase as the interest and fees are capitalized to the loan. The debt, including all interest owed, is repaid to the lender when:
* The borrower sells the property, OR
* The borrower moves into aged care (not required by some lenders), OR
* The last surviving borrower dies

How can I take the funds?
These loan products have become more flexible over the past 3-4 years with some lenders allowing borrowers able to access their loan funds as:
* a lump sum
* a regular income stream
* an as required draw down basis (similar to a ‘line of credit’)
* or a combination of all of the above

Lenders also offer a range of different interest rate options.
However the most common are:
* Variable
* Capped variable
* Fixed term-Ie. 1 year, 2 years 5 years, 10 years etc.
* Fixed for life

What is SEQUAL?
SEQUAL stands for "Senior Australian's Equity Release Association of Lenders". This is a ‘self regulating’  industry body that oversees the responsible provision of these facilities to the public. SEQUAL lenders abide by a strict code of conduct that includes mandatory independent legal advice for all borrowers and a "No Negative Equity Guarantee".

The Reverse Mortgage Company ONLY recommends  SEQUAL lenders.

For more info check out: www.sequal.com.au and www.mfaa.com.au

What is a "No Negative Equity Guarantee"?
All SEQUAL lenders give a guarantee that in the unlikely event that the debt grows or ‘capitalizes’ to such level over time that it exceeds the value of the security property (the value is established by a genuine ‘arms length sale of the property), then neither the borrower, nor beneficiaries of the estate, can be pursued for this shortfall after the sale has been concluded (Some lenders have a stipulation that the loan MUST not be in default, according to the loan contract). Put simply, if the ‘on market’ sale of the security property is not enough to cover the debt, the lender will absorb any loss. In addition, the lender cannot review the original terms of the loan if they are concerned that  the debt may have grown to a level greater than the value of the property. As members of FORTUS, we undertake to specifically identify the conditions (if any) of your recommended loan that may have an effect of the lender’s No Negative Equity Guarantee.

Will a Reverse Mortgage affect my pension?
It is possible in many cases to structure your equity release plan so that it does not reduce the amount of pension income you currently receive. However, the outcome will depend on your individual circumstance and we strongly recommend that ALL borrowers in receipt of government pension speak with a Financial Information Services (FIS) officer at a Centrelink office before lodging an application.

Am I spending the kid’s Inheritance?
Although the interest will accumulate and compound the loan balance, based on past trends your property should also increase in value over time, at least partially offsetting the increasing loan balance. We will prepare a projection based on your individual circumstances that will demonstrate HOW the value of your home will increase over coming years, compared to the increase in the loan balance, as the loan ‘capitalizes’. Some SEQUAL lenders offer an option called 'Protected Equity', which guarantees that a requested proportion of equity (from 10% to 50%) is preserved for beneficiaries (it also means you can't borrow as much). The amount of equity you will have left will be determined by the following factors:
* The ‘term’ or length of the loan - Ie.how long you live
* Your Interest rate choices – Ie movements in ‘variable’ rates
* Growth rates in the value of your property

How much can I borrow?
Most SEQUAL lenders use a similar table of ‘percentage of property value : the age of the youngest borrower’ criteria for establishing how much you can borrow. We arrange for a independent, sworn valuer to establish the current market value of your property. The amount you can borrow is then simply the relevant percentage of the ‘sworn value’ for your age from the table below.

The general rule of thumb is: the older you are the more you can borrow. Most lenders increase this ratio by 1% with each year lived. In cases where there are two applicants (Eg. husband and wife), the maximum amount you can borrow is always based on the age of the youngest borrower.

What will happen to my equity?
An important part of the loan inquiry process is to estimate how a reverse mortgage may affect your equity position over time. We will prepare a projection based on your particular circumstances, for the Reverse Mortgage loan best suited to your requirements. Of course, it is impossible to predict with absolute certainty what will happen in the future; However, based on historical trends in Australian property values and current interest rates, our loan calculator can illustrate the likely effect of a reverse mortgage on your property's equity.

Family Members enquiring for Mum and/or Dad?
Many enquiries come from concerned children seeking to help either one parent or both to enjoy a better retirement. Children searching the web for their parents are generally aware of how equity release loans work; HOWEVER they are often not aware of the wider LIFE-STYLE BENEFITS that these loans offer. Whilst the focus is often on the material wants of the parents, in many instances the borrowers place just as much importance on –
Their sense of independence and peace of mind.
The ability to remain in their property rather than move or ‘downsize’
The ability to retain friendships, neighbours and local community facilities
Our clients tell us it's the little things that make a big difference in retirement.
If you choose to arrange your parent’s Equity release Plan via another source, please ensure that  they:
* Visit the Financial Information Services (F.I.S) officer at Centrelink to discuss any possible effect of their pension entitlement(s)
* ONLY deal with a FORTUS Equity Release Specialist
* ONLY accept a loan from a SEQUAL lender
* Seek independent legal and/or financial advice
* Make provision for possible future financial needs that may arise

If you have any questions, or you wish to discuss how these facilities can affect equity, feel free to call anytime without obligation.

Where can I get more info?
The Reverse Mortgage Company is fully equipped to assist you  with your enquiry, HOWEVER we also recommend you consult other sources independently to supplement and confirm the information found here. Clicking the links below will spring open a new window containing an external website.