BB Fact Sheets – Money – Equity Release

What is an 'Equity Release' loan

• The two main types of equity release products are reverse mortgages and home reversion schemes :

  • Reverse Mortgages allow you to borrow money against the value of your home. You usually don't have to repay the loan until you leave and move , sell your home, or die. Each year the fees and interest you would ordinarily pay are added to the loan balance. Over time, you're charged interest on the interest (or compound interest) and that builds up the total amount you owe. When the loan ends you, or your estate, must repay what's owing (usually out of the proceeds of the sale of your home).
    

  • Home Reversion Schemes allow you to sell all or part of your home at a discounted price – usually between 35% and 60% of what your home is worth. But you have the right to keep living in your home until you die or decide you want to move.

• You should be eligible for a reverse mortgage if you are 60 years or older and own your own home. You'll usually be able to borrow between 15% and 40% of the value of your home, depending on how old you are – the older you are the more you can borrow. In the case of couples who are both owners of the property, the amount you can borrow is based on the age of the youngest borrower.

Baby Boomers and Borrowing

• A large number of Baby Boomers around Australia have built up equity in their own home and investment properties over the past 40 years. For some people who want to continue living where they are, releasing some of the equity in their home may enable them to afford their preferred lifestyle.

• Baby Boomers have also enjoyed a generally higher standard of living than their parents. For most people, their largest asset is their house and all their money is tied up in their home. Equity release loans have been slowly taken up to date by people who have wanted to supplement their income to maintain a certain standard of living.

Top Equity release borrowing Tips

• A financial decision to meet your needs at 60 can look very different at 75 when your needs and circumstances may have changed significantly. These products can be complex and involve anticipating your long-term needs, including how long you think you might live and what your health or care needs might be in the future.

• You need to carefully think about what your needs are now and in the future so that you can check whether an equity release product will be right for you. Each of the equity release products can be very complex and if used inappropriately or with poor advice, may have a bad long term impact on your finances. It is important to seek independent financial advice from a certified financial planner or counsellor.

• Some people have used money from equity release products for unwise or highly risky purposes. Putting your equity release money in the Bank could cost you dearly since you're most unlikely to get a return as high as the cost of your loan. Using the money to make other investments is a highly risky way to borrow. Your debt will keep growing, and there's no guarantee your investment will turn out well. You should also think twice about taking the maximum amount, especially if you are a younger retiree because you may not have enough cash left to meet your needs as you age.

• There is a risk that the amount of the loan may increase to a point where it is more than the value of your home. This is called 'negative equity'. Some, but not all, reverse mortgage products guarantee that if this happens, you will not have to repay more than the value of your home (a no negative equity guarantee). But you may lose this protection if you don't meet the terms and conditions of the loan – for example, if you don't repair and maintain your home to a standard set by the lender.
  

• The best way to address some of these risks and ensure you get the product that is most appropriate for your needs is to get independent legal and financial advice .

• Make sure you get a lawyer to read the terms and conditions and explain exactly what you're signing up for.

• On the financial side talk to someone who understands financial matters, knows your personal needs and will put your interest ahead of anything else. Always check how your financial adviser is being paid for the advice they give you.

• If you are using a mortgage broker, look for one who has received industry accreditation.

• Consult the Centrelink Financial Information Service or the Department of Veterans Affairs to see if it may impact on your pension entitlements.

• Talk it over with your family.

Equity Release Information Service                               - 1800 020 110

Credit Ombudsman Service                                          - 1800 138 422

Financial Ombudsman Service                                      - 1300 780 808

NSW - Consumer Credit Legal Centre                           - 1800 808 488

QLD - Financial Counselling Service                            - 07 3321 3192

VIC - Financial & Consumer Rights Council                  - 03 9663 2000

WA - Consumer Credit Legal Service                           - 08 9221 7066

SA - Community Legal Service                                     - 08 8362 1199

TAS - Anglicare Financial Counselling Service             - 03 6234 3510

NT Anglicare Top End Financial Counselling Service  - 08 8985 0000

ACT - Care Financial Counselling Service                   - 02 6257 1788

Centrelink Financial Information Services                   - 13 23 00

ASIC information line                                                  - 1300 300 630

Australia - http://www.fido.gov.au/fido/fido.nsf#

              - http://www.understandingmoney.gov.au/content/default.aspx

              - http://www.asic.gov.au

              -  http://www.asx.com.au/

National Information Centre on Retirement Investments - http://www.nicri.org.au/

SEQUAL - Industry Association                                       -  http://www.sequal.com.au

Indigenous Australians:

Fido for Indigenous Australians -  http://www.fido.gov.au/fido/fido.nsf/byHeadline/Indigenous

Multicultural Information:

Fido in LOTE                             -  http://www.fido.gov.au/fido/fido.nsf/byHeadline/Publications

Equity Release -  http://www.fido.gov.au/fido/fido.nsf/byheadline/Equity+release

Reverse Morgages - http://www.fido.gov.au/fido/fido.nsf/byheadline/Reverse+mortgages

Reverse Morgage calculator - http://www.fido.gov.au/fido/Reverse+mortgage+calculator

Equity Release / Reverse Morgage information services -  http://reversemortgage.nicri.org.au/

Home Reversion Schemes -  http://www.fido.gov.au/fido/fido.nsf/byheadline/Home+reversion+schemes

Checklist for Equity Release products -  http://reversemortgage.nicri.org.au/index.cfm

Talking it over with family - http://reversemortgage.nicri.org.au/go/reverse-mortgages/nicri/the-big-picture

Moneymap investment decision tool - http://www.nicri.org.au/go/moneymap/about-moneymap

                                                          -  http://www.nicri.org.au/go/moneymap/calculators

Equity Release information service -  http://reversemortgage.nicri.org.au/getting-advice

Commonwealth Financial Counselling  - http://www.fahcsia.gov.au/sa/families/cfcp-cfcp_directory.aspx

Financial Counselling Services in Australia- http://www.fido.gov.au/Financial+counselling

Centrelink Financial Counselling Service - http://www.centrelink.gov.au/internet.nsf/services/

List of Personal support services - http://www.fido.gov.au/byHeadline/Personal%20support

Commonwealth - Rural financial counselling scheme -  http://www.daff.gov.au/agriculture-food/drought/rfcs

Disclaimer: The information contained in this section should not be used for individual financial advice. Please seek independent financial advice if you have concerns or specific questions relating to your money.

This article was created by Jennifer Lawrance for babyboomers.com.au - Australia's website for Baby Boomers. Sources include ASIC and the Federal Government. Babyboomers.com.au is an online resource to help people find information and services on health, money, travel and recreation