Selling your family home is not the only way to fund your aged care needs. A reverse mortgage for seniors can be one way to access your home’s equity while continuing to live there. This can help pay for Support at Home services, private care or future aged care costs. It is important to seek independent advice to find the right financial solution.
Key Takeaways
- You do not always need to sell your home to pay for Support at Home services.
- A reverse mortgage lets you borrow against your home, with interest added over time.
- An equity reversion scheme lets you sell part of your home’s future value for funds today.
- Accessing home equity can reduce the value available for future aged care costs and your estate.
- A specialist mortgage broker can help compare products and find an option that matches your needs.
Do You Have to Sell the Family Home?
One of the biggest concerns people have when they need aged care is whether they will have to sell the family home. While selling may ultimately be the right decision for some, it isn’t the only option.
For many older Australians, the home represents decades of accumulated wealth. Borrowing against the home can provide the funds needed to pay for the necessary modifications, help meet the ongoing cost of Support at Home services or pay for private care (or perhaps a combination of all 3).
There are several ways to access home equity, and in a recent article we looked at the government Home Equity Access Scheme (HEAS). If you need access to the equity in your home, the strict limits of the HEAS may not provide you with sufficient funds. That’s why it’s important to know that there are also commercial options available, the two most common types are reverse mortgages and equity reversion schemes.
How Reverse Mortgages Work
A reverse mortgage is a loan secured against your home. Unlike a traditional home loan, there no regular repayments. Instead, the interest is added to the loan balance, with the debt repaid when the home is eventually sold, after you move permanently into residential aged care or your estate is settled.
This can be an attractive option for people who have substantial equity but limited cash flow; what’s often described as “asset rich, cash poor”. It also means you can stay in the home.
Most reverse mortgages allow you to borrow either a lump sum, regular payments or a combination of both. The amount you can borrow will depend on your age and the value of the property. Older borrowers are able to access a higher percentage of their home’s value.
Importantly, reverse mortgages in Australia include a “no negative equity guarantee”, meaning you will never owe more than the value of the home when it is sold.
The downside is that interest compounds over time. Because you are paying interest on both the loan and the accumulated interest, the debt can grow significantly if the loan remains in place for many years. Before borrowing, it is important to understand how this may affect the value of your assets in the future including your ability to fund a move into residential aged care. Beyond that you need to think about how this will affect your estate and any inheritance you hope to leave.
How Equity Reversion Schemes Work
An equity reversion scheme works quite differently. Rather than borrowing money, you sell a portion of your home’s future value in exchange for a lump sum or regular payment.
For example, you may wish to receive 20% of the equity in your home today. Tto do so you may need to sell 50 per cent of the future value of your home while retaining the right to continue living there. When the property is eventually sold, the provider receives the agreed percentage of the sale proceeds, regardless of how much the property has increased in value. 50 per cent is obviously a lot more than what you are getting today but neither you nor the investor know how long you will live there—it could be 5 years or 35 years.
This structure avoids having a loan and the compound interest of a reverse mortgage, but it means giving up some of the ownership of your property now at a discounted price and part of the future capital gain. The best solution depends on your individual circumstances.
Why Using a Broker Makes Sense
Whether you are considering a reverse mortgage or an equity reversion scheme, obtaining independent advice is essential.
A specialist broker can compare products from multiple lenders and providers, explain the differences in fees, interest rates, borrowing limits and flexibility, and recommend the product that is most appropriate for your circumstances.
Importantly, mortgage brokers have a” Best Interests Duty”, which means they are legally required to prioritise your interests when recommending a product. By comparison, if you approach a lender directly, they will normally only discuss their own products. They are not comparing other options and do not have the same obligation to identify a more suitable solution.
Using Home Equity with Support at Home
Support at Home is the main government program that helps older people stay living independently at home for longer.
It funds clinical care, independence supports such as personal care and transport, and everyday living help like cleaning, gardening and meal preparation.
You may still need to pay contributions for some services and everyday living support, depending on your income and assets.
Borrowing against your home can help cover these contributions, pay for home modifications or assistive technology, or add extra hours of support at home.
Before you borrow, check your Support at Home budget and care plan, and speak with My Aged Care or a qualified financial adviser about the best mix of funding for your situation. You can find more information in the Aged Care Funding Guide.
Help Finding the Right Support at Home Provider
Once you understand your funding options, the next step is finding a Support at Home provider that can deliver the services you need.
Choosing a provider involves more than comparing service prices. You also need to consider the services available, provider fees and whether they can meet your needs at home.
Aged Care Decisions is a free, independent service that can help you compare suitable Support at Home providers. We do the running around for you, so you can make an informed choice with less time and hassle.
Get your Free Provider Options Report and Support at Home Costs Report today.
FAQs
Do I have to sell my home to pay for aged care?
No, selling your home is not your only option. You can use the equity in your home to pay for home modifications or Support at Home services. Commercial options like reverse mortgages or equity reversion schemes can provide these funds.
What is a reverse mortgage?
A reverse mortgage is a loan secured against your family home. You do not make regular repayments. Instead, the interest is added to the balance, and you repay the debt when the home is eventually sold.
Will I owe more than my home is worth with a reverse mortgage?
No, reverse mortgages in Australia include a no negative equity guarantee. This means you will never owe more than the home’s value when it is sold. However, compound interest will still grow the debt over time.
How does an equity reversion scheme work?
An equity reversion scheme lets you sell a portion of your home’s future value. In return, you receive a lump sum or regular payments. You keep the right to live in the property, and the provider receives their agreed percentage when the home is sold.
Why should I use a broker instead of a lender?
A specialist broker compares products from multiple lenders. They are legally required to prioritise your best interests. If you go directly to a lender, they will only discuss their own products and do not have to find you a better solution.
The information contained in this article is intended as general information only and does not constitute personal financial advice, legal advice or professional advice. While care has been taken to ensure the information is accurate and up to date at the time of publication, rules, rates and circumstances can change.
The information provided may not be suitable for your individual circumstances. Before making any decisions about financial matters you should seek advice from an appropriately qualified professional who can consider your personal situation.
