Home' Navy News : September 3rd 2009 Contents l
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WE CARE ABOUT
YOUR MONEY AS
MUCH AS YOU DO.
That's why we've created our fantastic
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Take a look at: www.adfconsumer.gov.au
ADF Financial Services Consumer Council
September 3, 2009
YOU are probably thinking
that an article about using
the equity in your home is
not a relevant topic for you
at the moment.
A lot of life's big steps such as buy-
ing a house, repaying a mortgage, and
reaching a ripe old age of 60 have to
be taken before these products even
become available to you.
Your parents or grandparents, how-
ever, may be considering using the
equity in their home and it is important
for you and them to be aware of these
types of products available and their
What are reverse mortgages?
Reverse mortgages allow you to
use the equity -- that is, the part of the
home you own outright -- to borrow
money against your home.
Who would use one?
These products are generally only
available for the over 60s and are pro-
moted as a way to access money with-
out having to sell your house. You can
choose to receive money as a lump-
sum or in instalments and you only
have to repay the loan when the house
People consider using the equity in
their home because they have a valu-
able asset but they don't have a regu-
lar income and are considered "cash
Is a reverse mortgage right for you?
TAKE CARE: (Above) Your equity in an ordinary mortgage.
LOOK CLOSELY: (Below) How your equity decreases with a
poor". Reverse mortgages seem to pro-
vide a solution because the lender will
give you the cash you need in return
for a part of the equity in your home.
What are the risks?
These products are risky because
you are using your main asset, your
house, as security for the loan. This
means that if your financial situation
changes during the term of the loan, or
you breach a term or condition of the
agreement, you may have to sell your
house so you can repay the loan.
High interest rates and high fees
also make these products relatively
expensive and, after time, you can find
yourself owing more than what your
house is worth. If this happens, you
have negative equity in your home.
Most reverse mortgages offer a No
Negative Equity Guarantee, which
ensures that you can't end up owing
more than the house is worth. If you
are considering taking out a reverse
mortgage it is wise to only consider
loans that offer a No Negative Equity
Guarantee. Remember to read the fine
print because, in some cases, if you
breach even a minor term or condition
of the loan this protection can be lost.
In particular, check:
whether the product offers a No
Negative Equity Guarantee; and
what the penalties are for breaching
the terms and conditions.
Is it the right mortgage?
It's important for anyone thinking
about using a reverse mortgage to
consider whether it is the best financial
solution for your particular situation.
Make sure you consider:
your financial needs now and in the
how much the loan is likely to cost
you over the long term;
how long you are likely to live for;
whether you will have enough cash
left over for aged care accommoda-
tion if you need it; and
whether you want to leave anything
to your kids.
What are your other options?
Consider whether the following
suggestions are feasible:
selling your home and moving
somewhere smaller; or
living off your current income and
getting a reverse mortgage further
down the track (to preserve your
Another way to use the equity in
your home is through Centrelink's
Pension Loan Scheme. These schemes
allow you to make repayments at any
time and their interest rates are signifi-
cantly lower than commercial equity
Get more information
With any financial product it is
always important to seek independent
legal advice and not feel pressured by
a hard sell.
Before signing anything
The Centrelink Financial
Information Service (13 23 00) or
the Department of Veterans' Affairs
(13 32 54) to see if an equity release
product will impact your pension
The National Information Centre
on Retirement Investments (NICRI)
free Equity Release/Reverse
Mortgage Information telephone
service (1800 615 676).
Phone the ADF Financial Services
Consumer Council on 1300 300 630 or
visit www.fido.gov.au for a copy of FIDO'S
booklet. Visit FIDO's information on equity
release products at: www.fido.asic.gov.
au/equityrelease. While you are there, take
a look at what a reverse mortgage could
cost you over the long term with ASIC's
reverse mortgage calculator. Also check
out the actuarial study on life
Taking out a reverse mortgage on your home is a big risk. As Tony D'Aloisio,
Chairman of the Australian Securities and Investments Commission writes,
you should consider carefully before making the decision.
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