Equity Release Products have become very popular in recent years as more people see them as a way to obtain money for a variety of uses. The following explanation of how they work was taken from the Fido web site of the Australian Securities & Investments Commission
About Equity Release Products
If you are an older person you may own your own home outright, but find you do not have enough cash to meet your needs. You probably can’t take out an ordinary loan if you don’t have enough income to pay it off, and you may not want to sell your home.
Equity Release Products (sometimes called “home equity loans” or “reverse equity products”) could be one way around these problems, because they allow you to borrow money against the value of your home while you still live there.
But Equity Release Products can be complicated and are a major commitment. Your house is probably your most valuable asset and it’s also your home. Equity release products can be expensive and inflexible if your circumstances change in the future. So if you take up an equity release product, make sure you shop around and get good independent legal and financial advice.
Products for older people
The two main types of equity release products for older people are reverse mortgages and home reversion schemes.
Reverse mortgages allow you to borrow cash against the value of your home. You usually don’t have to make regular repayments until you leave and move into care, sell your home or die. 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.
In most cases you will need to be at least 60 years old and own your own home outright (or use the equity release money to pay off any existing loans) to be eligable.
If you are interested in exploring this option, click the web links below to discover more.
More Info on Equity Release Products
If you’re considering an equity release as a way of generating some extra funds, a good source of information is an organisation called Senior Australians Equity Release Association (SEQUAL). This is a not for profit organisation supported by the leading providers of equity release products. The web site address is – www.sequal.com.au
This site will give you a lot of useful information on Equity Release products (reverse mortgages) and answers most of the questions you might have.The site also lists the association’s member companies, who have to comply with a code of conduct, which gives consumers some safeguards.
We have taken the following common Questions and Answers from the SEQUAL web site as a way to provide you with some additional information. More details are available from their web site.
What is meant by the terms Equity Release, Lifetime or Reverse Mortgage?
It is a loan to senior homeowners that allows them to access a portion of the equity value in their home. No repayments are required whilst the borrower(s) remains in their property. Interest and fees accrue on the loan and the loan is repayable in full when the last surviving borrower permanently vacates the home or the home is sold.
What can the loan funds be used for?
Generally, the funds can be used for any worthwhile purpose.
Can I make repayments?
Repayments can be made at any time. You should check with the Lender to see whether any fees apply.
How much can I borrow?
Each SEQUAL member has different criteria when assessing how much each applicant may borrow. The amount you can borrow will generally be determined as a percentage of your home’s value, and based on the age of the youngest borrower as well as the location and value of your property.
Will my home be valued?
SEQUAL members need to ensure they have the most current and up to date value of your property. When assessing your loan application, a Valuation is likely to be required. Some Lenders will re-value your home from time to time, to ensure your property remains in good condition and to monitor changes in property values. You should check with your Lender regarding the frequency and cost of this service.
Will I be able to borrow more?
Some SEQUAL members allow you to borrow further funds. Any request for further funding, will be subject to the Lender’s underwriting criteria.
Do I need to obtain independent legal and financial advice?
SEQUAL members will strongly recommend you obtain independent financial advice, but you will be required to obtain independent legal advice from a solicitor of your choice.
Will an Equity Release loan affect my pension/Centrelink Income?
As each seniors’ circumstance will vary from person to person, SEQUAL recommends that you discuss your proposed equity release transaction with your Centrelink FIS Officer. They can be reached on
13 23 00.
Do I need to involve my family in this transaction?
SEQUAL recommends that you discuss any equity release transaction with your family.
How can I work out how much my loan could grow to over time?
All SEQUAL members are required to make available a tool allowing you, or you’re adviser, to illustrate the growth of your loan over time, together with the potential change in value of your property. These illustrations should include a range of assumptions around future interest rates and property price movements.
What happens if the loan balance exceeds my property’s value?
All the products offered by SEQUAL members are required to to have a “No Negative Equity or Non-Recourse Guarantee”. This means that provided the terms and conditions of the loan have been met, you will never owe more than the net realisable value of your property, and the Lender cannot seek to recoup any shortfall between the loan balance owing and the value of the property, from you personally or your estate. This is a contractual obligation given by the Lender and it is subject to certain terms and conditions of the loan that should be checked by you and your advisers.
Huge Increase in Popularity of Equity Release Products
SEQUAL has recently released research findings that show the number of people taking out equity release loans has almost doubled over the last 18 months.The rapid growth of this relatively new market has attracted a lot more loan providers, so potential borrowers now have a wide choice of companies to select from.
DISCLAIMER. Baby Boomers Life Change and its associated companies and individuals are not responsible for the outcomes of any financial arrangements made with these companies. We provide these links as information only.