Ask Paul: What is the best reverse mortgage?

Dear Paul,

I am 70 years old, and have never married nor had children. I own my home and am on a full pension. I don't have superannuation and have a small amount of money in my bank account.

I would like to know what the best reverse mortgage choice is for my situation. I have heard that I shouldn't take out a large lump sum but to accept weekly or fortnightly payments. 

I want to enjoy the rest of my life by travelling and having fun with family and friends without worrying about money. My health is good at the moment; however, one never knows what the next day may bring. 

Would Services Australia be the best option for me to obtain a reverse mortgage without the huge fees that some companies charge?

I appreciate your help and understanding.  - June

You have hit the nail on the head here, June. Anyone who gets, or is eligible for, a qualifying pension, such as your age pension, can apply through the Home Equity Access Scheme to get a non-taxable loan.

The huge plus of this is that the rate of interest is extraordinarily good at 3.95%. This is pretty much half the rate charged by commercial lenders.

Normally, I would be jumping up and down saying, "If it looks too good to be true, it will be", but this is no scam, as it is a scheme provided by our government to help older Australians to 'top up' their lifestyle with a loan that can be paid fortnightly or as a lump sum, or a combination of the two.

It would be remiss of me not to give you my usual thoughts about risks.

It is important to understand the impact of the loan balance, plus interest, growing over time. Being a government product, I would have to say it is fair, but your loan balance will grow. The loan is flexible - it can be transferred to another property - but at some point it has to be repaid.

This could be when you sell to move into another form of accommodation, or from your estate.

Importantly, there is a 'no negative equity' guarantee. Based on long-term property returns, over time it is likely that your property would increase in value above the interest charged on the loan, so negative equity, meaning the loan is higher than the value of your home, is highly unlikely.

I believe that using our assets to improve lifestyle as we age is a logical plan. If in any doubt, chat to a solicitor or adviser, and I always believe it is worth discussing with your family where appropriate.

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