Have you ever heard of a reverse mortgage? It’s a financial tool that has been gaining significant popularity in recent years, especially among senior homeowners on the Gold Coast. Imagine being able to access the equity you’ve built up in your home without having to sell or downsize. Sounds intriguing, doesn’t it?
How does a reverse mortgage work in Australia, and can I have access to reverse mortgage lenders if I ever need one? Stay with me as I answer these questions and walk you through the top 6 things you need to know about a reverse mortgage.
Talk to PhilWhat is a reverse mortgage?
In a nutshell, a reverse mortgage is a unique type of loan that allows homeowners, typically those aged 60 and older, to convert a portion of their home equity into tax-free cash. Unlike traditional mortgages, where you make monthly repayments to the lender, with a reverse mortgage, the lender actually pays you, turning the tables on the borrowing process. It’s like unlocking the value of your home and turning it into a financial resource to support your retirement dreams or meet unexpected expenses.
How does a reverse mortgage work?
Instead of making regular payments, the loan balance increases over time, while the equity in your home decreases. You retain ownership of your home, and the loan is repaid when you sell the property, move out, or pass away. It’s a flexible financial solution designed to provide homeowners with extra funds and financial security during their golden years.
Now that you have a general idea of what a reverse mortgage is and how it works, let’s dive deeper into the top six things you need to know about this unique financial tool.
Top 6 things to know about a Reverse Mortgage
1. How much can you borrow from reverse mortgage loans?
When it comes to reverse mortgage loans, the amount you can borrow is primarily determined by your age and the value of your home. Generally, if you’re 60 years old, the maximum amount you can borrow is likely to be around 15-20% of your home’s value. As you get older, you become eligible to borrow a larger proportion of your home’s value.
As a rule of thumb, you can add 1% for each year over 60. So, if you’re 65, the maximum borrowing amount may increase to about 20-25%.
The minimum amount you can borrow varies among lenders but is typically around $10,000. The flexibility of a reverse mortgage allows you to choose how you receive the borrowed funds. You can opt for a regular income stream, a line of credit, a lump sum payment, or a combination of these options.
It’s important to note that reverse mortgages are generally not available for younger homeowners. The borrowing ability and the increase in loan amount are linked to your age. To gain a better understanding of how much you can borrow and the potential impact on your home equity over time, you can use ASIC’s Moneysmart reverse mortgage calculator.
2. Will I lose my property to the lender under the reverse mortgage scheme?
No, you will not lose your property to the lender under the reverse mortgage scheme. It is a common misconception that the bank will take ownership of your property. In reality, as a borrower, you remain the full legal owner of the property, and the lender holds a mortgage on it. Your name will continue to be on the title, just like with any other traditional mortgage.
The lender’s interest is registered on the property, similar to a conventional mortgage loan. As long as you fulfill your obligations and do not default on the agreement by breaching key terms, the lender cannot force the sale of your home. Default conditions can vary between lenders, but they generally include factors such as failure to pay council rates, inadequate property insurance, or intentional neglect or damage to the house.
The reverse mortgage arrangement is designed to provide you with the financial benefits of accessing your home’s equity while allowing you to retain ownership and occupancy.
3. Pros and cons of a reverse mortgage loan
PROS
- A reverse mortgage provides you with access to the equity in your home, giving you financial flexibility to meet your needs and improve your quality of life.
- With a reverse mortgage, you’re not required to make regular repayments. The loan is typically repaid when you move out of the home permanently, sell the property, or pass away.
- You retain full ownership of your home, and the lender takes a mortgage interest on the property.
- Reverse mortgages taken out after 18 September 2012 in Australia have negative equity protection, ensuring that you can’t owe the lender more than the market value or equity of your home.
- Protections and limitations are in place to prevent reverse mortgage borrowers from falling into financial traps.
CONS
- Interest rates and fees for reverse mortgages are generally higher than standard home loans. The compounding interest over the loan term can cause your debt to rise quickly.
- Taking out a reverse mortgage may affect your eligibility for pension benefits. It’s important to consider the potential impact on your overall financial situation.
- Drawing funds from your home through a reverse mortgage may reduce the available funds for future needs, such as aged care or other expenses.
- If you’re the sole owner of the property and someone is living with you, that person may not be able to stay in the home after your passing.
- If you choose to fix your interest rate, breaking the agreement may result in high costs.
4. When does the loan have to be repaid?
The reverse mortgage loan must be repaid when you move out of the home permanently, pass away, or sell your property. The repayment is typically made from the proceeds of selling your home, and any remaining balance is retained by you or your estate. If someone else is living with you in the home, they may be required to move out when the loan needs to be repaid.
In general, repayment is triggered by no longer using the home as your principal residence, failure to pay property taxes or homeowners insurance, or neglecting the maintenance of the property.
5. Is it possible to owe the reverse mortgage provider more than what your home is worth?
Short answer: no. You are protected by what we call the No Negative Equity Guarantee under the National Consumer Credit Protection Act if your reverse mortgage was taken out after 18 September 2012.
However, if you obtained a reverse mortgage before this date, it’s important to review your contract to determine if it includes negative equity protection. If your contract does not include this provision, it is advisable to discuss the situation with your lender or seek independent advice to understand your options and potential steps to take.
The negative equity protection provided by the guarantee offers a safeguard to borrowers, ensuring that even if the value of your home declines over time, you will not be held responsible for paying back more than the home’s worth.
6. What must you consider before applying for a reverse mortgage?
- Repayment Obligations: While you are living in your home, you are not required to make repayments. However, once the property used as security is sold, the entire loan balance, including interest and any ongoing fees, needs to be repaid in full.
- Loan Balance and Interest: Reverse mortgage interest rates are calculated on the daily outstanding balance and added monthly to your loan account. As a result, your loan balance will gradually increase over time.
- Repayment Timeframe: If you permanently move out of your home, the entire loan balance becomes due within 12 months. It’s important to plan for this repayment obligation to avoid any financial strain.
- Equity Drawdown: The amount of equity you can access through a reverse mortgage depends on various factors such as your age, property value, and loan approval criteria. Drawing funds from your property now may reduce the amount you can potentially access in the future.
- Variable Interest Rates: Keep in mind that the interest rates on reverse mortgages can fluctuate over time, leading to changes in the amount you are charged.
- Impact on Eligibility: Consider the potential impact on your eligibility for government benefits, such as the Age Pension. Reverse mortgages may affect your entitlements, so it’s advisable to understand the consequences for your specific circumstances. Seeking guidance from a qualified financial or tax adviser can provide valuable insights.
- Consideration for Others: If you have cohabitants or beneficiaries living with you, it’s important to think about their position and the impact on them if you pass away. Since your home is often a significant asset to be inherited, careful consideration is needed.
Before deciding on anything, its best to consult with a qualified mortgage broker experienced in reverse mortgages and have them explain to you what’s in the fine print.
Applying for a reverse mortgage?
My team and I at Professional Lending Solutions can help you with your application. We’re also open to answering questions you may have regarding this type of financial commitment. Click the button below to speak to myself and my team.
Talk to PhilRefinancing your home loan is a sensible thing to do during a period of interest rate hikes. In fact, a growing number of Aussie homeowners are actively searching for the best fixed rate home loans on offer from lenders. How are they doing this? By refinancing.
According to the latest data released by the Australian Bureau of Statistics (ABS), Australians refinanced $17.8 billion worth of mortgages over the past 12 months! That’s a 4% increase from the year prior (back before the Reserve Bank of Australia started increasing the official cash rate).
But as a financially responsible mortgage holder, how do you decide if it’s a good time to refinance your home loan? Should you refinance in response to changed circumstances (perhaps the birth of a child or a promotion at work)? Or is refinancing something that you should schedule regularly if you want continual access to the best-fixed rate home loans?
Book an appointmentWhy refinance your home loan in the first place?
As of this writing, the RBA cash rate sits at 4.1%. This is the highest the cash rate has been in more than a decade. So with this in mind, why would homeowners want to refinance loans? Shouldn’t one look into home loans refinance when the cash rate is low?
While it’s true that many homeowners tend to consider refinancing when interest rates are low, there are still advantages to be gained in a rising rate environment:
- Even with a higher cash rate, there may be other lenders with home loan refinance offers that have lower interest rates than what you currently have. By refinancing, you could secure a new loan with a lower interest rate, reducing your monthly mortgage payments and potentially saving money over the life of the loan.
- If you currently have a variable rate mortgage and anticipate further cash rate hikes, refinancing to fixed-rate refinance home loans can provide stability and protect against future interest rate increases. This way, your monthly repayments remain constant, regardless of any future rate hikes.
- Rising property values can provide an opportunity to access the equity in your home through refinancing. You may be able to tap into the equity to fund renovations, investments, or other financial needs. This can be particularly beneficial if you have built up substantial equity over the years.
- Home refinance loans often come with debt consolidation options. This can be an opportunity for you to consolidate high-interest debt, such as credit cards or personal loans, into their mortgage. By combining multiple debts into a single loan with a lower interest rate, you may reduce your overall interest costs and simplify your finances.
- Adjust the terms of your loan, e.g., changing the loan duration, switching between interest-only and principal-and-interest repayments, or adjusting other loan features to better align with your current circumstances.
- Refinancing enables you to explore loan products with improved features and benefits that may not have been available when you initially obtained your mortgage. This could include features like an offset account, redraw facility, or the ability to make additional repayments without penalties.
Can you refinance a fixed loan?
Of course. Any type of home loan can be refinanced. But if you’re worried about the contract you signed outlining the period of time the loan is fixed, then you are right to feel so. To refinance a fixed loan essentially means breaking the contract, and your lender may require compensation for any loss. This comes in the from of break costs and discharge fees.
To help work out how much these costs could be, feel free to ask your lender or a mortgage broker. As a mortgage broker myself, I can help assess the potential savings and costs associated with refinancing.
Can a mortgage broker refinance your home loan for you? Well, we can certainly assist you with that. I personally will find competitive fixed home loan rates on your behalf, and help you understand the impact of refinancing on your financial situation.
Ask a refinance mortgage brokerSo — when is it a good time to refinance your home loan?
Many Australian homeowners wind up paying the dreaded home loan “loyalty tax” because they wait too long to refinance. But you aren’t always guaranteed to save money if you refinance like clockwork.
Technically speaking, when can you refinance a home loan?
In general, you can technically refinance your home loan at any time, subject to certain conditions:
- You will have to meet the lender’s eligibility requirements, i.e., credit score, income, employment stability, existing debts, and the loan-to-value ratio (LVR) of your property.
- You have completed a minimum period of time on your existing loan.
But how you decide if it’s a good time?
Personally, I recommend that mortgage holders talk to a broker about reassessing their home loan every 2 years. This assessment will help you to figure out how does refinancing work or when to refinance home loan, whether or not refinancing is really going to work in your best interests, based on:
1. How competitive your interest rate is
If your interest rate is no longer competitive, then you could be paying a lot more interest than necessary. Refinancing to a home loan with a lower interest rate could save you literally thousands of dollars in the first 12 months alone.
2. Whether your home loan has the right features
When you were a first home buyer, you may not have needed any added features, but now that you’re a few years into your mortgage, you could find them more worthwhile. Home loan features can play a big role in helping you to achieve your long-term financial goals. For example, do you want to pay off your home loan as fast as possible? Then you’ll need a home loan that allows you to make additional repayments. Are you planning to renovate at some point in the future? Then a redraw facility could help you finance the construction.
3. When your current fixed term is due to end
Most home loans with a fixed rate will automatically roll over to the standard variable rate when the fixed term ends. This could result in you suddenly paying a lot more interest than you were before. That’s why it’s a good idea to consider refinancing in the months leading up to when your fixed term expires.
4. If you need to access equity
Equity is the difference between what your property is worth and how much you currently owe on your home loan. For example, $600,000 (property value) minus $350,000 (mortgage balance) equals $250,000 of equity. If you’re thinking about funding a renovation, consolidating personal debt or buying a car, then refinancing could help you to access the equity in your home so you can fund your plans.
Book an appointment with PhilWhen is it not a good time to refinance your home loan?
A home loan assessment may sometimes show that it is not a good time to refinance your home loan. This could be because of:
1. High exit fees
Some lenders will charge borrowers a fee to discharge their home loan. And if you’re currently on a fixed term home loan, you could also be charged a penalty if you decide to refinance before the fixed term has expired. So, it’s important to compare potential savings (from reduced interest) with any associated fees.
2. Your Loan to Value Ratio (LVR)
When considering a refinance, you’ll need to determine what your Loan to Value Ratio is. You can do this by dividing the balance of your loan (how much you want to refinance) by the current value of your property and then multiplying the answer by 100. For example, a $360,000 loan divided by $400,000 property value equals an LVR of 90%. If your LVR is higher than 80% you may be charged Lenders Mortgage Insurance (which could end up costing a lot more than what you would save on reduced interest).
Refinance your home loan with trusted Gold Coast mortgage brokers
If you’re wondering whether or not it’s a good time to refinance your home loan, then the best thing you can do is ask a professional for some expert advice.
I have been in the industry many years, and as a mortgage broker Gold Coast homeowners have come to know and trust, I can guide you on this refinancing journey with the utmost care and expertise. Give my team at Professional Lending Solutions a call on Ph: 0421 934 033 or Ph: 07 5597 6049, and I’ll happily do a free assessment of your home loan. If now’s not a great time for you to refinance, I’ll be honest and upfront about it.
Refinance Gold Coast today!Business finance loans can be beneficial for new businesses, expanding businesses and businesses that want greater flexibility in managing their cash flow. In fact, commercial loans can be the ideal solution to several common business problems. But commercial lending is also more complicated than applying for a standard home loan. So, it’s important to have a full understanding of what business loans are, how they operate and which options would be most beneficial for your business.
What is a Business Finance Loan?
Commercial lending involves a range of different finance solutions, so it’s well worth talking to a business finance broker to ensure you end up with the right type of loan. Business loans can include lines of credit, finance for equipment or commercial premises and development finance. There are secured and unsecured commercial loans, and they can range from just a few thousand dollars up to $1 million (depending on eligibility criteria).
Some of the most common business loans include:
- Working capital finance: This includes a range of options designed to help a business manage cash flow, such as overdrafts, business credit cards and lines of credit. This allows a company to pay its bills and continue operating while waiting for debtors to pay their accounts.
- Commercial property finance: This is similar to a mortgage on a residential home, but it applies to the purchase of a commercial property. A commercial property loan will usually be secured against the property being purchased.
- Equipment finance: An equipment finance loan can assist with the purchase of commercial vehicles, machinery and even office equipment. This makes it a good choice for new businesses (that require equipment to start trading) or those that need to upgrade existing equipment.
- Business loan: A business loan allows you to borrow a set amount of money which will then need to be paid back in regular instalments. A business loan can have either a fixed or variable interest rate, allowing business owners to choose an option that will best suit the way their business operates.
Does a Business Finance Loan Need to be Secured?
A secured loan has an asset listed as a form of security. If the borrower defaults on the loan, the lender can seize the listed asset to recover the cost of the loan. With commercial loans, the asset could be a property, commercial vehicle or even warehouse stock. Business finance loans can be secured or unsecured, depending on a range of factors. If you want to apply for an unsecured business loan, then you’ll need to demonstrate that your business has been performing strongly and that you’ve consistently been paying your bills on time.
How to Get a Business Loan
If you want to apply for a business loan, then the best thing to do is contact an experienced business finance broker. A broker can help you to determine what kind of commercial loan is going to be most suitable for your business and which lenders are going to offer the most competitive finance product. A commercial finance broker can also help you get the necessary paperwork in order, to ensure you meet the lenders’ application criteria.
Lenders will typically be interested in your credit history, turnover, assets and existing debts but they may also want to see a business plan and your cash flow history to ensure you’ll be able to meet the minimum repayments. Every lender is different, with its own unique system for assessing a commercial finance application. That’s why it’s so important to involve a business finance broker from the very beginning – to ensure your business gets the right finance solution from the right lender.
You’ve decided to buy a car, so your first step is to visit a car dealership…right? While it’s tempting to jump straight to the test-drive stage (who doesn’t love a test-drive!), the first step should always be getting your car finance sorted. And this is where having a car finance broker on the Gold Coast can suddenly be invaluable.
But what does a car finance broker actually do? What car finance options are available? And what are the benefits of using a car finance broker on the Gold Coast?
What Does a Car Finance Broker on the Gold Coast Do?
A broker is someone who acts as an intermediary between a buyer and a lender. A car finance broker helps a car buyer obtain the finance they need from a suitable lender. This is similar to how a mortgage broker assists a property buyer to apply for a home loan. The big difference is that it’s very common for people to contact a mortgage broker when they need a home loan, but for some reason, people are less likely to use a car loan finance broker for help with a car loan.
What Are Your Options for Car Finance on the Gold Coast?
If you’re planning to buy a car, then you’ve got a few different options available to you for obtaining car finance on the Gold Coast:
1. You could approach a car dealership directly and ask them to organize finance on your behalf. While this might seem like the simplest way to do things, a car dealership won’t necessarily help you find the best loan – they’ll just sign you up to a standard contract with their preferred lender.
2. You can go straight to your bank and apply for a personal loan to cover the cost car loan finance broker of the car purchase. But once again, this limits you to one particular lender, so you won’t necessarily be getting the best car finance option.
3. You can contact an experienced car loan finance broker and ask them for help. Just like the first two options, this is a simple and straightforward process. But unlike the other options, you can trust a car finance broker to help you get the best possible finance solution to suit your needs.
What are the Benefits of Using a Car Finance Broker on the Gold Coast?
There are quite a few benefits to using a broker when you need car finance on the Gold Coast. By using the best car finance broker, you’ll give yourself:
- More choice: Don’t limit yourself to a specific lender. With a broker, you can choose from a wide range of different loan products from a panel of lenders. This gives you greater choice over the setup of the loan, the features, and what kind of interest rate you’ll have.
- More control: When you apply for a car loan through a lender, you are no longer just a name on an application form. Lenders are actively trying to gain the business of brokers, so with a broker, you have more flexibility and control.
- More bargaining power: With a pre-approved car loan, you can walk into a dealership and tell them exactly how much you have to spend. There’s no haggling over prices while they try to convince you to spend “just a little bit more.” The sales team knows what you can afford and will help you find a car to match your budget.
- More time: It is theoretically possible to trawl through all the various car loans currently available on the market and then compare them to see which represents the best deal for you. But this will take a lot of time. Time that let’s face it, most of us don’t have. By using a broker, you save yourself valuable time without having to compromise on the product.
- More information: A car finance broker will have a broad industry knowledge base and professional experience to draw on. Additionally, finance brokers will have an extensive database that allows them to catalogue and compare all of the loan products available. This gives you more information, so you can have confidence you’re making the right choice.
To ensure you get the car loan that is best for you, contact the experienced team of car finance brokers at Professional Lending Solutions. We can answer your questions, compare car loan products and help you find the right solution. To find out more, visit our dedicated best car finance broker resource or try our free online car loan repayment calculator.