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There are two main options available if you’re in the market for a reverse mortgage to access some of the equity in your home – a commercial loan or the government’s home equity access scheme.
Before committing to anything, running your numbers is critical to ensuring you make an informed decision. The calculators we demonstrate below can estimate the future loan amount that will need to be repaid as well as the likely future value of your home.
You might be surprised by how much you can borrow while preserving a significant proportion of your equity to use when your home is eventually sold.
Watch these video demonstrations to understand how to use the Moneysmart Reverse mortgage calculator and Centrelink’s Home Equity Access Scheme (HEAS) calculator. They can help you to gather the information you need to decide whether a commercial loan or the HEAS is suitable for you.
Moneysmart Reverse mortgage calculator
Access the Reverse mortgage calculator here
Hi, I’m Kate from SuperGuide. Welcome to our walkthrough of the Moneysmart Reverse mortgage calculator.
This free tool provided by ASIC is a great place to start if you’re considering a reverse mortgage as part of your retirement plan. It can help you to decide if a reverse mortgage is right for you based on the amount you intend to borrow and how that would affect the equity you have in your home.
To begin, we just scroll down. The first thing that we can select is the lender and the product that we’re going to be using. If you’re just thinking about a reverse mortgage and you haven’t chosen a lender, it’s okay to leave this blank. The tool will just use some default assumptions instead. But if you have chosen a lender, it’s valuable to put them in here because the tool will then tailor the results to that particular lender’s rules, including the maximum amount that they will lend you and the maximum loan to valuation ratio that they will offer you. This ratio is the percentage of your home’s value that the lender will provide to you.
For IMB, it’s saying that the maximum loan to valuation ratio is 14%. That means they would loan you 14% of the value of your home. That’s probably the ratio that applies for the youngest borrowers. Generally, the older you are, the higher the loan to valuation ratio they will offer you. The calculator will tailor that for us later based on the age that we put in.
If we continue down, the next section is about your personal circumstances. These first three Yes or No questions don’t affect the output that the calculator will give you, but they do tell you important information that you’d need to take into account before taking out a reverse mortgage if any of these circumstances apply to you. We’re just going to choose No for all of them. But if any of them do apply to you, do select Yes and have a read of the information that pops up there so that you’re aware of it before you go ahead and take out a loan.
Then we can select this box that tells ASIC that we understand they’re not endorsing any particular reverse mortgage product. We can go ahead and get started with the body of the calculator. Here you can put in your name. That doesn’t really matter. We’ll just put John, and the age of the youngest borrower. So if there’s the two of you, a couple, that’s quite common, you would put in whichever of you is younger. Of course, if it’s just you, then this would be your age. I’ll put in someone who’s 75.
Then you need to insert your current property value. Now, this is a good time to show you, if ever you’re unsure when you’re using the calculator, if you see one of these blue question marks, you can hover your mouse over there to get more information. If we do that in this box, it shows us that we need to estimate the current value of the home or contact a local real estate agent. So if you’re not sure of the value of your home, you can have a real estate agent come to have a look around and give you a valuation. And that is a free service that they offer. So we can put in here $800,000, say, as the value of the home.
The tool will then estimate how that property will grow in value over the coming years as part of its calculations. It assumes a growth rate of 3% if you don’t make a change. But if you feel that your property is not going to grow by that much, you can change it to be a lower value. Or perhaps if you think the value of your property is going to grow faster than that, if the property market around you is particularly strong, you could increase that. This is flexible, but I’ll leave it at 3% for our example.
Then we need to click the Next button. Here is where we get to the details of what you would actually like to borrow. It shows us here that based on the IMB Rank Reverse mortgage we have selected, the maximum loan amount would be $184,000, which is 23% of the house’s current value. The minimum loan amount is $20,000, so we need to borrow at least that much.
Now you can choose whether you’d like to borrow a lump sum of money or whether you want to receive regular payments from your loan. That will depend on what your needs are. You would select lump sum if you have a large lump sum expense that you need to fund. Perhaps your home requires significant repairs or you need a new car, for example.
Conversely, if you don’t have any immediate needs, but you’re just finding it difficult to get by day by day and you’d like some extra income coming in, then you would choose the regular payments option. If you’ve got both going on, you can even choose a combination of lump sum and regular payments at the same time, and the calculator can do all of those things.
The first thing I’d like to show you is if you take a lump sum. Let’s put in, say, $40,000 is the lump sum that we’d like to borrow paid to us in zero years and zero months, so straight away. Now, we might like to receive another lump sum later. Perhaps we require another $40,000 in another four years’ time. You can put that in there, and you can actually put in up to five lump sums, you can see. Now that shows us we’ve taken two lump sums of $40,000 for a total of $80,000, which is below our maximum loan of $184,000, so it’s okay to go ahead and proceed.
Now we’ll click Next. You can see now it moves on to the costs of the loan. What’s the interest rate, establishment fee, and so on. Again, if you haven’t chosen a lender, you can just leave these values as the defaults that pop up in the calculator. If you have chosen a lender, then you can go ahead and tailor each of these to what the lender is actually going to charge you.
I’ll leave the interest rate at 7% and put in a $495 establishment fee. That’s quite typical. I’ll leave the ongoing fees at zero. It is usually relatively easy to find a lender that won’t charge you a regular monthly fee. Then we can click Next.
Now you can see we’ve finally reached the results section of the calculator, but this is not the end. The results here are already quite comprehensive, but we can move the numbers around to get even more information about the potential outcomes if you go ahead with this reverse mortgage. Initially, the calculator is showing you that in 15 years’ time, when you’re 90, you’re estimated to own 84% of your home. You can see that the value is predicted to have grown to just over $1.2 million from the $800,000 that the home is currently worth. You’ll owe just over $200,000 to the lender of the $80,000 that you borrowed, plus the interest that that’s accumulated.
Now, what’s really great about this calculator is that it allows you to stress test the result. So if you click this What happens if box, it can show you how the outcome would change if things don’t go quite to plan. So first of all, it shows you if the interest rate is 2% higher than you predicted, then you’ll own 79% of your home equity when you’re 90 instead of 84%. You can change that here to say, Well, what if the property doesn’t grow in value? Then you would own 75% of your home, and the bank would own the other 25%.
You can also vary these figures on your own. So you can put in, Well, what if the property only grows at 1% and I end up paying 8% interest, then what would happen? It will change the results there for you. That’s a very good feature.
What you can also do is advance your age. It’s showing you what will happen when you’re 90 by default. But if you’re concerned about what happens after that, you can increase your age. What if you’re 100 and you’re still living in the home? Then what will happen?
You can see the calculator is dynamic. It changes the results immediately based on your change to that age and says in 25 years’ time, if everything goes to plan, you’ll own 76% of your home, and if it only grows at 1% with an 8% interest rate, then you’d own 50% of your home. This is really where you can spend a lot of time with the calculator, playing with different values to set your mind at rest about what could happen under different scenarios in future.
Once you’re happy with what you’ve got to look at there, you can continue down and click this button to show the details, and it shows you more information about what this picture will look like in 25 years based on if everything goes to plan versus your comparison that you’ve put in.
Now, the last thing we can do here is click View Summary. This gives you a really great dashboard of all the input that you’ve put in about how much you want to borrow, what your home is worth, and so on, and what your results are going to look like in the future. Right now, in five years, in 10 years, in 15 years.
Again, this is tailorable. So if you’d rather see a different period of years in any of these boxes, you can change them. Say you’d rather see what will happen in 15 years, and in 20 years, and in 25 years, because you’re more of a forward-looking person. You can change those figures and your dashboard will update itself for you.
Once you’re happy with this, you can go ahead and print your results if you would like to. There’s a lot of information on this page. It’s a lot to take in, so printing it to have another look at it later can be really sensible. Also, a lot of this allows you to show it to other people who would be interested, your partner who lives with you in the home, perhaps your children, to help them to understand as well what the impact of this reverse mortgage might be. Now, this is if we’re borrowing lump sums.
I’d like to show you the difference if you borrow regular payments instead. So if we go back to our results here, we can scroll up in the calculator and make changes. You can do this as many times as you like to test different scenarios about what you might borrow.
I’m going to take these lump sums out and say, We’re not going to borrow any lump sum at all. Instead, we’re going to borrow regular payments. Let’s say we’re struggling with the cost of living and we’d really like an additional $600 a month for the next 20 years until we’re 95 to live on. That’s going to be regular payments of $144,000. That’s borrowing more than under our original scenario, but over a longer period of time, so in small monthly payments, rather than two lump sums of $40,000 upfront.
If we click Next, we can see how that impacts the results. I’m going to leave this all the same. You can see that these numbers here look relatively similar to what they did before. At age 100, you’re expected to own 73% of your home equity, even though you’ve borrowed significantly more. And that’s because you didn’t borrow all the money upfront. You borrowed it slowly over a period of time.
So it is very important to take into account how you’ll be borrowing your money, how that may affect your home equity in future, and also how it may affect your Age Pension payments. If you take a lump sum and don’t spend it immediately, it would be assessed as an asset while you have it in your bank account, and that may reduce your Age Pension depending on your circumstances.
If you take regular payments and you spend them on your living costs, then that income is not accessible in any way by Centrelink because it doesn’t accumulate in your bank account. It’s not an asset, and therefore it can’t affect your Age Pension payments as long as you’re spending that money. These are things that are always important to consider along with the output from the calculator. You can always speak to Centrelink through their Financial Information Service, or of course, speak to a financial advisor about your particular circumstances before you go ahead with a loan.
Those are all the features that I wanted to show you. I hope that if you are considering a reverse mortgage, you go ahead and make use of this excellent free calculator that’s been provided by ASIC to understand if that could be right for you.
Access the Home Equity Access Scheme calculator here
Welcome to SuperGuide‘s walkthrough of the Home Equity Access Scheme calculator provided by Centrelink.
The Home Equity Access Scheme is a reverse mortgage that’s provided by the Australian government through Centrelink. To be eligible to use the scheme, you need to be Age Pension age or above, and Age Pension eligible.
That doesn’t mean you need to be receiving a payment. Your payment could be reduced to zero by your income and assets through the means tests. That means you’re still eligible for Age Pension, but your payment rate is zero. In that situation, you’re still eligible to use the Home Equity Access Scheme. You can also use it if you are currently receiving some Age Pension. It just impacts the maximum amount that you can borrow.
The scheme can be very tricky to understand, so the calculator is very useful to show you the maximum that you can borrow and how your proposed borrowings would impact your home equity in future use if you do decide to use the scheme. At the moment, the calculator is using an interest rate of 3.95% for the loan. That’s because that’s the current interest rate that applies to the scheme. It is quite a bit lower than interest rates that are available through commercial reverse mortgages, and it’s a rate that is set by the government. It can change with the prevailing interest rates, so do be aware of that.
Let’s scroll down and see how to use this calculator. First of all, you’ll see in this grey information box that you’ll get a more accurate estimate if you log into the calculator through your Centrelink online account by logging into MyGov. That way, the tool can access your personal details, like how much you’re already receiving from Age Pension, and your date of birth, to make sure that you’re eligible and tailor the calculator more to you.If you don’t want to log in to your online account or you don’t have access to one, it’s okay to just continue and use the calculator as I am. It just means you’ll need to enter your personal details manually.
First of all, you need to put in your date of birth. In this example, I’m just going to use someone who’s born in 1944, which means that they are above Age Pension age, and are eligible to use this scheme. I’ll say no, they don’t have a partner. If you do, you can, of course, select Yes. The calculator then asks if you’re currently receiving any Age Pension, because this will impact how much you can borrow from the Home Equity Access Scheme.
It also says here, you need to let them know about carer payment or disability support pension because they are also qualifying pensions to access this scheme. In this case, I’ll say Yes, this person is currently receiving an Age Pension. I’ll say no to rent assistance. This question now is asking if the rate of your pension is reduced by the income or assets test. If you’re receiving a full pension, you would say no. In this case, I’m going to say Yes, my pension is being reduced.
It again gives me this warning that I could get a more accurate estimate if I log in, because if I log in, it will know exactly how much Age Pension or disability, pension, or carer payment I’m currently receiving. If I still don’t want to do that, I can just tell the calculator what my last pension payment was. Let’s say in this case, this individual is receiving $400 a fortnight, which is a reduced rate of pension.
We then also need to put in the value of the real estate that we own. That means the value of your home that you’re living in that you want to use to access a reverse mortgage through this scheme.
Again, I’ll use an example of $800,000 value for the home. The tool is going to assume that the value of my property increases by 3% per year. If I’m comfortable with that, I can just leave it as is. If I’d rather put in a different figure, I can do that here. I’m just going to leave it as the default so that you can see how the calculator works.
It asks again here how much we want to offer as security for the loan. You can use up to the whole value of the home that you own, as long as there’s no other outstanding loan on it. Or you can use a lower amount if you prefer not to expose the whole equity that you have in your home.
Here again, it will ask if you have an existing loan. This again is to tailor the details more to you. If you’ve already started receiving payments from the Home Equity Access Scheme or the Pension Loan Scheme, as it was known in the past. I’ll just choose No here. Now, last of all, the calculator is going to ask how much we want to borrow. It’s going to ask if we want an advanced payment and how much we want to receive fortnightly.
There are limits on both of these. The advanced payment is limited to 50% of the rate of Age Pension for a period of 26 fortnights. That can be received up to twice a year. You can take up to two advanced payments per year. You don’t really need to know the ins and outs of how it works because the calculator will work it out for you. I’ll show you what I mean.
Let’s say, Yes, we want to use an advanced payment, it will tell me straight away, Okay, the maximum you can ask for as an advanced payment is this figure. I don’t need that much, so I’ll just put in $10,000. Let’s say I’ve got a lot of bills that I need to clear up that are overdue, and I need that money straight away. I would put that in there.
The calculator then wants to know if I would like to also get fortnightly payments after I’ve received my advance. I would, so I will say Yes, I would like to. It will offer me these options. I can choose to just receive the maximum that’s available, a percentage of the maximum. Say if you wanted to be conservative and say, I only want to receive 50% of the maximum amount I could, you could put that in here.
Or you can choose a fixed amount, which is probably the most likely one to choose because you know your expenses and how much extra a fortnight you really need to live on. When we choose a fixed amount, again, the calculator very helpfully tells us the maximum that we can choose, which is $1,600 or so a fortnight. In this situation, I could say, well, perhaps this individual doesn’t need that much. Maybe they only want an extra $500 a fortnight, a thousand dollars a month to cover their reasonable living expenses.
Now we’ve actually finished filling in the calculator. So we can press this Calculate button, and it will give us a summary. This is quite wordy, but don’t worry, there’s a graph further on that could be a little bit easier to understand. It gives us all the details here of our proposed loan. We’ve said we want to advance $10,000 and then get fortnightly payments of $500. You can confirm that that’s accurate based on what you do want and what you put into the calculator. It tells us that the loan is going to last until 2047, which is a good amount of time into the future.
It tells us the estimated value of our home on that day based on the 3% growth rate and how much we’re estimated to owe on the loan. We can see here, the home should be valued at roughly $1.5 million dollars, and we’ll owe the government $540,000. That still leaves a good amount of equity left in the home to be passed on to the next generation or whatever else we want to do with that.
Now, if we scroll down further, you can see here the graph that I was telling you about. This shows your borrowings and your interest. The light blue is the amount that you’ve actually received in payments, and the dark blue is the interest. This dotted line here shows when the loan payments would stop because you’ve reached the maximum loan amount, which is nearly 25 years into the future.
You can also view this as a table if you would prefer, although it’s quite a lot of data to take in in table form, so I tend to prefer to look at the graph. You could print this out as well if you wish to. You can see this Print button at the bottom so that you can take this information away and consider it in more detail at your leisure.
Perhaps show it to a financial planner who’s helping you, or to your family members who want to know about how this would work. There’s also the option here, a last way to tailor the calculation. If you have a maximum amount in mind that you don’t want to borrow more than, you could enter this here. Let’s do that just for the sake of an example. If we put in $400,000 as the amount we don’t want to go above for borrowings, it will adjust the graph for us and say, Well, okay, if you don’t want to borrow more than that, your loan payments will stop in actually a little bit less than 20 years rather than closer to 25 if you’re prepared to borrow more. That’s how you can do that last piece of tailoring.
If you do decide that you’d like to go ahead and apply for the Home Equity Access Scheme, there’s also a lovely link here for you that you can click on with instructions on how to apply for that scheme. And Centrelink and the Financial Information Service are also very helpful with that and will assist you with your application if required.
I hope that this walkthrough has helped you to understand how to use this calculator and what it is useful for, and also perhaps made you aware of the Home Equity Access Scheme as an alternative to a traditional reverse mortgage. It does have a no negative equity guarantee, just like a standard reverse mortgage does. There is no possibility that you can end up owing more than the value of your home, which is a nice reassurance. Thank you.