Reverse mortgages
How a reverse mortgage works
A reverse mortgage is a loan secured on your home, usually with no regular repayments, and with interest added to the balance. This page is the short version of the mechanics, and it is not a fit for everyone.
You borrow against the home and keep the title
You remain the owner. The lender registers a mortgage, usually the only one on the home, and you can keep living there while you meet the loan terms, which commonly include keeping the home insured and in reasonable repair, and paying the rates.
There is no set end date on the calendar. The loan is repaid when the home is sold, or when the last borrower moves out for good or dies, and moving into long-term care can start that clock. A default, such as not insuring the home, can too, so read the offer for the exact events.
How the money can be drawn
Lenders commonly offer a lump sum at the start, a reserve you can draw on later, regular payments, or a mix. Interest is charged on what you have actually drawn, not on a limit you have not used. Drawing a smaller amount, or drawing it later, keeps the balance smaller.
Set-up fees are often taken out of the loan, so you may not pay them from your bank account. They are still a cost, because they are added to what you owe and then attract interest.
What does not stop
You still pay rates, insurance and maintenance. Those are not paid by the loan unless you choose to borrow for them. Falling behind on them can put you in default, and a no negative equity promise can depend on you keeping to the terms.
Ask your own lawyer for independent legal advice before you sign. Lenders require that advice from a lawyer who is not acting for the lender, and you pay for it.
The decision is yours as the homeowner. Family may have a view, and it is worth talking it through, but the choice is yours.
General information only, not advice. We're a referral service and may receive a commission. If a reverse mortgage settles, the lender may pay us a referral fee.
Questions
- Do I make repayments?
- Usually there are no regular repayments. You can often repay some or all of the loan early. A discharge fee can apply when the loan ends, so ask for the repayment terms in writing.
- Do I still own my home?
- Yes. You stay the owner, with a mortgage registered to the lender. You do not hand the title over. Selling a share of the home is a different product, called home reversion.
- When does the loan have to be repaid?
- When the home is sold, or when the last borrower moves out for good or dies, subject to the loan terms. Going into long-term care, or not keeping the home insured and the rates paid, can bring that forward. The offer sets out the events.