Reverse mortgages offer financial flexibility in retirement

This is branded content for Heartland Reverse Mortgages.

As we age, working to retain our body's flexibility becomes an even more important part of our exercise regime if we want to continue to enjoy an active, healthy and more comfortable life into our senior years.

But it's not just physically where flexibility can contribute to our wellbeing and ability to achieve the lifestyle we'd like to have in retirement.

Financial flexibility is also important to health and happiness. Being able to relax in the knowledge that options are available to access funds if needed is key to achieving a retirement free from stress and worry about money.

One financial option attracting increasing interest is reverse mortgages because of the flexibility they offer, with features designed specifically to meet the requirements of those transitioning to retirement or already retired.

A reverse mortgage helps homeowners aged 60 and over flex the financial muscle they have in their home, using its equity to access funds with a range of choices to tailor the loan to their situation, from how they would like to drawdown the funds to when they want to repay it.

Reverse mortgages can be used to source a lump sum, get regular cash advances for up to ten years or a cash reserve (like a line of credit) to help fund anything from home repairs and improvements, to consolidating debt or buying a new car.

No regular repayments are required. However, you can choose to make repayments at anytime without penalty. The total loan including interest is only due to be repaid when you move permanently from your home, most commonly when the house is sold.

"Everyone's financial needs in retirement are different and this also changes over time as you age," said Sharon Yardley, Head of Operations at Heartland, Australia's leading provider of reverse mortgages.

"For example at the start you might need some extra funds to pay off your mortgage, to then access ongoing funds to supplement your income or to make changes to your home to allow you to stay there as you age, and then further down the track for aged care.

"Our reverse mortgage is designed to cater for our customers with the flexible drawdown options, flexible repayment options and for any purpose that could make it possible to live a more comfortable retirement."

So what does this look like in practice? Melbourne husband and wife David* and Margaret are Heartland customers who have used a reverse mortgage to provide a solution to the financial challenges they were facing.

David, 63, and Margaret, 72, own their home which is valued at $1,000,000. They decided to apply for a reverse mortgage to repay $33,000 of outstanding debt, and to fund $25,000 worth of home improvements, plus provide an extra $2000 to cover their solicitor's bill and some other small costs, making a total of $60,000.

They also wanted to use a reverse mortgage to supplement their income and applied for a regular advance of $1500 per month for five years - an additional total of $90,000

Looking to their future needs, the couple also applied for a $30,000 Cash Reserve Facility so they could request funds when needed just in case an unexpected expense came along.

Altogether the amount they wanted to borrow was $180,000.

In reviewing the application Heartland used the age of the younger of the couple, David, to calculate the amount they could borrow.

The calculation is based on the loan-to-value ratio (LVR), a term that refers to the ration of a loan's amount to the value of the property at the time the loan is taken out, multiplied by the value of the home.

In this case, the LVR was 18 per cent which meant David and Margaret were able to borrow $180,000, with the provision that their debts would be repaid on the sale of the home.

If you'd like to find out more about Reverse Mortgages contact the team at Heartland on 1300 889 338 or download your free Reverse Mortgage Guide.

Every situation is different - this information has been prepared without taking into account your needs, objectives, or financial situation. If you are considering a reverse mortgage, we encourage you to understand how it may affect your personal circumstances - talk to friends and family, speak to professionals, and use the resources and tools Heartland has available.

*David and Margaret are real Heartland customers but their names have been changed for privacy.

This is branded content for Heartland Reverse Mortgages.