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- Unlock the equity you have in your home!
If you've been building your nest egg for years .. it might now be time to enjoy life!
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Note ... due to the global financial crisis, the availability of "seniors / reverse mortgages" has decreased and many lenders have withdrawn from this market. Whether or not such a loan structure is available for you will be dependent on your individual circumstances. Please call Home Loan Advice Centre on 02-9210-1000 for more information.
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A senior is generally anyone who is either retired or approaching retirement age. As a senior you may have a number of loan options that can allow you to access the equity in your home - without the requirement that you earn an income. Read on for more information ...
Which category do you fit in?
- No income or little income – if you are like most retirees - you may own your own home and earn little or no income. You may however be struggling to enjoy life because of the increasing cost of living … if this is you, then a number of new loan products in the market may be for you! … see below
- Still earn an income – if you still earn an income then you may have the option of accessing the equity in your home (or investment property) by organising a standard home loan.
- Self employed - if you are or have previously been self employed and still have an ABN (Australian Business Number) then the options may be even greater through the variety of lodoc loans that could be available to you.
You earn little or no income ...
If you've spent your life building up your nest egg, then the equity in your own home can be the solution to enjoying your retirement.
A number of senior’s loan products have recently been introduced into the market by various lenders under a variety of names including Reverse Mortgage, Senior Access, Equity Tap, and Silver Lining.
A senior’s loan works by allowing you to access a pre-determined % of the equity of your home (between 15% and 40%) and convert this “bricks and mortar” equity into cash.
The difference between this type of loan and a normal loan however is that all the costs associated with the loan such as your normal loan repayments and fees can simply be added onto the balance owing on the loan each month. This is called “interest capitalisation”. It means you will be paying interest on interest and that the loan balance will increase over time, however the benefit is that you don’t have to come up with any loan repayments yourself each month.
These loans essentially allow you to borrow against the equity in your home, while allowing you to still enjoy all the benefits of living there. To be eligible, applicants may have to be 60 years or older and you generally must own your home outright. You don’t need to have an income and no credit checks are performed.
The loan continues until either the property is sold, the borrowers no longer live in the home, or all borrowers are deceased - at which time the loan amount must then be repaid in full - usually through the sale of the property, or possibly by children or beneficiaries paying the loan out by refinancing.
How much can you borrow? If you are 60 years old, you can borrow up to 15% of the value of your home. Where as an 85 year old is entitled to borrow up to 40% of the value of the home.
Age |
60 |
65 |
70 |
75 |
80 |
85 |
Amount |
10% |
20% |
25% |
30% |
35% |
40% |
The lender can give you the loan money either in a lump sum, or it can be paid monthly, or a combination of the two.
What you do with the money is entirely up to you – renovations, holidays, cruises, new car, investments, gifts … time to live your life and enjoy it!
You still earn an income
If you still earn an income, then a standard loan may be available to you. In general, lenders are prevented from discriminating against a loan applicant due to their age. In practice however, once an applicant approaches retirement, the ability for them to arrange and repay a home loan usually decreases. Whether or not a standard loan is available to you is dependant on which lender you apply to and your individual circumstances. If you are eligible, a popular option in such situations is a line of credit type loan which allows interest capitalisation (ie interest is allowed to be added onto the loan balance if no interest repayment is made).
For example - Jim and Mary own a $300,000 home and organise a $75,000 line of credit loan. When the loan settles, Jim and Mary have no immediate need for the funds so the line of credit balance stays at zero because they don’t draw on the funds. Therefore they pay no interest on their loan (whilst the balance remains zero) and this situation can continue for as long as the life of the loan (usually 30 years). In this case, Jim and Mary have handy access to $75,000 worth of equity in their property in case of a rainy day, without having to pay any interest cost for it.
If at any stage they decide to redraw some of their funds for whatever reason (renovations, medical bills, holidays) – say $5000, then from this point forward (unless they subsequently repay this principle in full) they will have a monthly interest cost – in this case it may be in the vicinity of say $30 per month. The benefit of a line of credit type loan however is that if they don’t want to make this monthly repayment from their own savings, then the $30 repayment is capitalised onto the loan balance instead so that the loan balance will increase to $5,030. In the following month, the new interest payment will be calculated on this new loan balance. Over time you can see that the balance of the loan will continue to increase as the interest is calculated on an continually increasing loan balance (especially if they don’t make any repayments what so ever). However, in Jim and Mary's case, their loan balance is only a small portion of their loan limit so they can potentially continue allowing the interest to capitalise for many years.
Speak to us to determine exactly what capacity you may have for a similar such loan.
You are still self employed
If you are self employed and still have an ABN registered, and you have sufficient equity in your property, you may be able to qualify for a lodoc loan. This is a loan type where the lender does not have to rely on any income evidence besides what you the customer declare you income to be. Our Lodoc page covers this type of loan in detail so please visit this page for more information.
Home Loan Advice Centre's loan service is provided to you completely free of charge. We can do this because our lenders (30 of Australia's main lending institutions) pay us commissions based on the wholesale volume of loans our group refers to them. We can therefore, offer you our experience and expertise, and guide you through the entire home buying journey, without charging you a cent. You end up with exactly the same loan if you'd organised it through a bank yourself, but we do all the leg work and negotiations with the banks for you ..... a great result! So if you are looking to buy a home or investment property visit our 5 minute online enquiry form. We'll assess your loan options and send you a full report of your capacity. Also we'll include parts 1 and 2 of our eCourse ... an indepth guide to buying property in Australia. Click to see a sample |
For more information on this topic or any other topics please call Home Loan Advice Centre on 02-9210-1000 or see the following links:
