Reverse mortgages free up finances for retirees
How can senior Australians cope with meeting mortgage repayments and the rising cost of living while on a fixed income? One great solution is to access home equity through reverse mortgages, say Gateway Bank and Heartland Finance
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RISING INTEREST rates and the higher cost of living are affecting millions of Australians.
People are cutting back on spending and building buffers to allow for growing loan repayments. Many borrowers are also using mortgage brokers to help them secure better interest rates by refinancing their home loans.
Coping with tighter finances is difficult but not impossible when you are in secure employment, but what do you do if you are retired and living on a pension? Servicing a home loan and paying bills is tough when you rely on a set income, but there are solutions.
One of these is a reverse mortgage, which provides older Australians with a means of freeing up the financial equity in their homes.
“Having finance options such as a reverse mortgage can help, especially for people who are living on pension alone, without any other income,” she says.
Most Heartland customers use their reverse mortgages for essential home or car repairs, or to pay off outstanding debts or bills. “You can also use a reverse mortgage to fund a holiday, home improvements, in-home support and residential care, to assist family, or to simply increase your standard of living.”
Yardley says more and more people are entering retirement with outstanding mortgage debt, which can eat into a fair chunk of their pension payments.
“The aged pension was not designed for retirees to have to make regular monthly repayments on a mortgage. At Heartland, we have the needs of retirees in mind, with no repayments required until the end of the loan, but the flexibility to make repayments at any time without penalty.”
Drummond says the key difference for older borrowers looking to take out a reverse mortgage is that they don’t need to worry about making regular repayments or being subject to the same serviceability tests that a standard home loan requires.
Drummond says the reverse mortgage sector went through a period of limited growth in the 2010s as a number of incumbents withdrew from the sector following the GFC.
“In recent years we have begun to see this market show positive signs of growth and an increase in providers looking to service this growing market,” he says.
“There are a number of factors behind the growth, but an ageing population and consistent strong property value growth over a relatively long period have been strong contributors.”
Gateway Bank’s reverse mortgage offering, which was launched in September 2020, is designed to provide borrowers with maximum flexibility to use the funds when and how they need them, says Drummond.
“We offer a line of credit so borrowers only draw what they need when they need it, and this in turn should help them minimise the interest on their loan,” he says.
“We’ve also made it simple for borrowers to access their funds – they can do this via internet banking and also using Gateway’s Eco Debit card. This flexibility appears to have resonated well with the market and generated positive feedback.”
Heartland has been providing reverse mortgages in Australia since 2004 and is the leading reverse mortgage provider in Australia, says Yardley, helping more than 25,000 seniors.
“Our award-winning, market-leading product is flexible, allowing customers to tailor their loans to suit individual retirement needs. This sets us apart from many of our competitors and has allowed us to maintain our position as the market-leading provider for several years.”
Features include 5% higher LVRs than some competitors; an aged care and secondary property loan option; low minimum loan amounts; an equity protection option; flexible drawdown options, including redraw for all new loans; no maximum loan amount (limited by LVR and age only); and a 30-day cooling-off period.
Yardley says Heartland aims to increase awareness of reverse mortgages through brokers whose customers are seeking finance in later stages of life.
Reverse mortgages allow Australians aged 60 or older to borrow a percentage of their home equity
How a reverse mortgage works
“For many in retirement, a standard home loan is not an option,” he says. “Without a reverse mortgage option, many borrowers would be forced to sell their home in order to fund their retirement – a reverse mortgage enables them to remain in their home.”
A reverse mortgage can be used for most purposes, says Drummond.
“The most frequent we see are supplementing income, renovations and upkeep on their home, a significant purchase like a car or holiday, or gifting to a family member.”
According to international research published by EY, the growth potential of the equity release market is huge, says Yardley.
More than $15bn of equity is released per year globally. By 2031 this is expected to surpass $50bn annually, with the most common type of equity release globally being reverse mortgages.
“Heartland has seen significant growth in reverse mortgages in recent years, with its loan book now well over $1bn,” Yardley says. “An ageing population, rising debt levels, the increasing cost of living, and a preference to age in place are all contributing factors to the increased demand for reverse mortgages.”
Debt consolidation and home improvements are the top two reverse mortgage loan purposes, with 46% of Heartland loans used for debt consolidation in the 2022 financial year.
Data from Heartland’s recent customer survey also shows that 91% of respondents believe the cost of living is putting a strain on their budget, and 87% agree that the aged pension does not provide enough for them to live the retirement they desire.
“Using a reverse mortgage to supplement income is a popular option for our customers to offset cost-of-living increases, with 31% of Heartland’s reverse mortgage loans used for this purpose in FY2022, which is almost double the amount from the previous year,” says Yardley.
Royal Melbourne Institute of Technology research sponsored by Heartland shows that almost 90% of senior Australians want to remain in their homes for as long as possible but limited super and the rising cost of living are restricting their ability to fund this.
“Providing customers the ability to release equity with a reverse mortgage means they can enjoy a more comfortable retirement, while continuing to own and live in their home for as long as they choose,” says Yardley.
Gateway Bank is one of Australia's leading customer-owned banks and has been in operation for over 60 years. Gateway offers a wide range of products and services covering everyday banking, home loans, personal loans, reverse mortgages and commercial mortgages. We're proud to have been named Australia's Best Small Mutual Bank 2022 by Mozo. Our Green Plus Home Loan was also recognised by Mozo as Australia's best Green Home Loan in 2022, underpinning our commitment to be the bank that supports our customers' pockets and their planet.
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Heartland Finance is part of Heartland Group Holdings Limited (Heartland Group), a financial services group with operations in both Australia and New Zealand. Heartland has a long history with roots stretching back to 1875 and is listed on the Australian and New Zealand stock exchanges (under the ticker HGH). Heartland provides finance for retirement through Heartland Reverse Mortgages and the Heartland Well-Life Loan. Heartland Reverse Mortgages is Australia’s leading reverse mortgage provider. Since 2004, Heartland has helped more than 25,000 Australian seniors live a more comfortable retirement by releasing equity from their homes.
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Yardley says Australia’s ageing population is steadily increasing, with more seniors entering retirement in debt. “This, combined with the lending restrictions of lenders and financiers providing traditional mortgages, makes it difficult and complicated for seniors. A reverse mortgage provides people as they age with the financial freedom to release equity from their home – without having to sell – and to remain in their home and community.”
It’s advantageous for brokers to diversify and future-proof their businesses, says Yardley.
“With the projected growth in the equity release market over the next 10 years set to triple globally, Heartland presents an opportunity for brokers to get on board with Australia’s leading reverse mortgage provider now.”
Drummond says offering reverse mortgages opens up a new market opportunity for brokers. “This is a segment that we believe will continue to grow into the future and provides brokers with a new customer group to diversify their businesses,” he says.
Edward D. Jones Sr. establishes Edward D. Jones & Co. in 1922, determined his company will treat associates as partners and treat clients fairly by offering appropriate, quality investments. The firm’s office in downtown St. Louis is a single room furnished with a desk, three chairs and a hat rack.
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“Without the need for regular repayments, and with full loan repayment only required when customers cease to reside in their homes, a reverse mortgage allows people to enjoy a more comfortable retirement, with the benefits of their community, social networks, and family”
Sharon Yardley,
Heartland Finance
In Partnership with
Reverse mortgage providers Gateway Bank and Heartland Finance explain how these loans operate, the benefits, and why brokers should offer them to clients.
Gateway Bank chief operating officer Zeb Drummond describes a reverse mortgage as a financial instrument that’s designed to enable older Australians to access the equity tied up in their properties.
“Many Australians have significant wealth in their homes but are relatively cash poor,” Drummond says. “This solution enables them to access this wealth to help fund their retirement and, importantly, remain living in their homes, as they don’t need to sell their property to access the equity.”
Gateway currently works with a small number of specialist reverse mortgage brokers, says Drummond.
“Reverse mortgages are a specialised area and come with a significant compliance burden,” he says.
“Reverse mortgages can have implications for pensions and aged care plans, so anyone considering focusing on this segment should ensure they have sufficient training and education.”
Yardley says reverse mortgages are one of the most heavily regulated consumer finance products, so Heartland invests heavily in supporting brokers dealing with reverse mortgages.
“We send regular newsletters with product, policy, and legislation updates that help to enrich our brokers with relevant information, and our dedicated broker support team is available to assist at any stage,” she says.
“Many Australians have significant wealth in their homes but are relatively cash poor. This solution enables them to access this wealth to help fund their retirement and importantly remain living in their homes”
Zeb Drummond,
Gateway Bank
Industry experts
Christopher Lee
MFAA head credit adviser, Finsure Finance and Insurance
Stewart Saunders
Heritage Bank
Sharon Yardley
Heartland Finance
Zeb Drummond
Gateway Bank
Industry experts
Zeb Drummond has over 18 years of banking experience, having worked across a range of disciplines in a variety of organisations, from the big banks to customer-owned banks, and has been at Gateway for eight years. As chief operating officer, Drummond currently leads Gateway’s sales and operational teams, including the direct and third-party sales functions, the customer service teams and the lending origination, settlement and transactional service teams. He also manages the relationship with Gateway’s broker aggregator partners.
After his commute to the office from Sydney’s Northern Beaches, Drummond enjoys collaborating with his teams on continuing to look for better ways to serve Gateway’s members. After hours, he enjoys balancing the needs of his young family, surfing and snowboarding.
Gateway Bank
Zeb Drummond
With a finance career spanning over 21 years, Sharon Yardley, head of operations, risk and compliance at Heartland Finance, is currently responsible for Heartland Reverse Mortgages in Australia, including distribution, operations, communications, regulatory compliance and the credit risk framework. She has a master’s degree in business administration.
Heartland Finance
Sharon Yardley
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Tellus in penatibus condimentum malesuada ante vulputate nisi, arcu leo. Amet urna sapien purus vestibulum fermentum a. Cursus metus massa donec sed varius. Nunc enim sit morbi lacus, molestie et nunc. Nullam sed facilisi id malesuada. Ante purus velit, quam scelerisque ultrices scelerisque donec.
Velit egestas vel ornare pellentesque ridiculus. Mauris tempor augue quis mattis suspendisse feugiat commodo posuere. Faucibus massa adipiscing nullam elit, ac vel accumsan. Phasellus eget ac dignissim fermentum ac placerat elit, metus. Nulla porttitor ante egestas molestie quis quam. Pharetra magna sit mauris tellus gravida rutrum libero sit. Justo orci cras euismod proin massa lorem ut. In non tellus phasellus faucibus ullamcorper nullam odio dui et.
Heritage Bank
Stewart Saunders
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Tellus in penatibus condimentum malesuada ante vulputate nisi, arcu leo. Amet urna sapien purus vestibulum fermentum a. Cursus metus massa donec sed varius. Nunc enim sit morbi lacus, molestie et nunc. Nullam sed facilisi id malesuada. Ante purus velit, quam scelerisque ultrices scelerisque donec.
Velit egestas vel ornare pellentesque ridiculus. Mauris tempor augue quis mattis suspendisse feugiat commodo posuere. Faucibus massa adipiscing nullam elit, ac vel accumsan. Phasellus eget ac dignissim fermentum ac placerat elit, metus. Nulla porttitor ante egestas molestie quis quam. Pharetra magna sit mauris tellus gravida rutrum libero sit. Justo orci cras euismod proin massa lorem ut. In non tellus phasellus faucibus ullamcorper nullam odio dui et.
MFAA head credit adviser, Finsure Finance and Insurance
Christopher Lee
Christopher Lee
MFAA head credit adviser, Finsure Finance and Insurance
Stewart Saunders
Heritage Bank
Sharon Yardley
Heartland Finance
Zeb Drummond
Gateway Bank
Industry experts
Zeb Drummond has over 18 years of banking experience, having worked across a range of disciplines in a variety of organisations, from the big banks to customer-owned banks, and has been at Gateway for eight years. As chief operating officer, Drummond currently leads Gateway’s sales and operational teams, including the direct and third-party sales functions, the customer service teams and the lending origination, settlement and transactional service teams. He also manages the relationship with Gateway’s broker aggregator partners.
After his commute to the office from Sydney’s Northern Beaches, Drummond enjoys collaborating with his teams on continuing to look for better ways to serve Gateway’s members. After hours, he enjoys balancing the needs of his young family, surfing and snowboarding.
Gateway Bank
Zeb Drummond
With a finance career spanning over 21 years, Sharon Yardley, head of operations, risk and compliance at Heartland Finance, is currently responsible for Heartland Reverse Mortgages in Australia, including distribution, operations, communications, regulatory compliance and the credit risk framework. She has a master’s degree in business administration.
Heartland Finance
Sharon Yardley
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Tellus in penatibus condimentum malesuada ante vulputate nisi, arcu leo. Amet urna sapien purus vestibulum fermentum a. Cursus metus massa donec sed varius. Nunc enim sit morbi lacus, molestie et nunc. Nullam sed facilisi id malesuada. Ante purus velit, quam scelerisque ultrices scelerisque donec.
Velit egestas vel ornare pellentesque ridiculus. Mauris tempor augue quis mattis suspendisse feugiat commodo posuere. Faucibus massa adipiscing nullam elit, ac vel accumsan. Phasellus eget ac dignissim fermentum ac placerat elit, metus. Nulla porttitor ante egestas molestie quis quam. Pharetra magna sit mauris tellus gravida rutrum libero sit. Justo orci cras euismod proin massa lorem ut. In non tellus phasellus faucibus ullamcorper nullam odio dui et.
Heritage Bank
Stewart Saunders
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Tellus in penatibus condimentum malesuada ante vulputate nisi, arcu leo. Amet urna sapien purus vestibulum fermentum a. Cursus metus massa donec sed varius. Nunc enim sit morbi lacus, molestie et nunc. Nullam sed facilisi id malesuada. Ante purus velit, quam scelerisque ultrices scelerisque donec.
Velit egestas vel ornare pellentesque ridiculus. Mauris tempor augue quis mattis suspendisse feugiat commodo posuere. Faucibus massa adipiscing nullam elit, ac vel accumsan. Phasellus eget ac dignissim fermentum ac placerat elit, metus. Nulla porttitor ante egestas molestie quis quam. Pharetra magna sit mauris tellus gravida rutrum libero sit. Justo orci cras euismod proin massa lorem ut. In non tellus phasellus faucibus ullamcorper nullam odio dui et.
MFAA head credit adviser, Finsure Finance and Insurance
Christopher Lee
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Reverse mortgages: What are they and how do they work?
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Zeb Drummond
Gateway Bank
Sharon Yardley
Heartland Finance
Stewart Saunders
Heritage Bank
Christopher Lee
MFAA head credit adviser, Finsure Finance and Insurance
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Tellus in penatibus condimentum malesuada ante vulputate nisi, arcu leo. Amet urna sapien purus vestibulum fermentum a. Cursus metus massa donec sed varius. Nunc enim sit morbi lacus, molestie et nunc. Nullam sed facilisi id malesuada. Ante purus velit, quam scelerisque ultrices scelerisque donec.
Velit egestas vel ornare pellentesque ridiculus. Mauris tempor augue quis mattis suspendisse feugiat commodo posuere. Faucibus massa adipiscing nullam elit, ac vel accumsan. Phasellus eget ac dignissim fermentum ac placerat elit, metus. Nulla porttitor ante egestas molestie quis quam. Pharetra magna sit mauris tellus gravida rutrum libero sit. Justo orci cras euismod proin massa lorem ut. In non tellus phasellus faucibus ullamcorper nullam odio dui et.
MFAA head credit adviser, Finsure Finance and Insurance
Mark HarChristopher Leeon
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Tellus in penatibus condimentum malesuada ante vulputate nisi, arcu leo. Amet urna sapien purus vestibulum fermentum a. Cursus metus massa donec sed varius. Nunc enim sit morbi lacus, molestie et nunc. Nullam sed facilisi id malesuada. Ante purus velit, quam scelerisque ultrices scelerisque donec.
Velit egestas vel ornare pellentesque ridiculus. Mauris tempor augue quis mattis suspendisse feugiat commodo posuere. Faucibus massa adipiscing nullam elit, ac vel accumsan. Phasellus eget ac dignissim fermentum ac placerat elit, metus. Nulla porttitor ante egestas molestie quis quam. Pharetra magna sit mauris tellus gravida rutrum libero sit. Justo orci cras euismod proin massa lorem ut. In non tellus phasellus faucibus ullamcorper nullam odio dui et.
Heritage Bank
Stewart Saunders
With a finance career spanning over 21 years, Sharon Yardley, head of operations, risk and compliance at Heartland Finance, is currently responsible for Heartland Reverse Mortgages in Australia, including distribution, operations, communications, regulatory compliance and the credit risk framework. She has a master’s degree in business administration.
Heartland Finance
Sharon Yardley
Zeb Drummond has over 18 years of banking experience, having worked across a range of disciplines in a variety of organisations, from the big banks to customer-owned banks, and has been at Gateway for eight years. As chief operating officer, Drummond currently leads Gateway’s sales and operational teams, including the direct and third party sales functions, the customer service teams and the lending origination, settlement and transactional service teams. He also manages the relationship with Gateway’s broker aggregator partners.
After his commute to the office from Sydney’s Northern Beaches, Drummond enjoys collaborating with his teams on continuing to look for better ways to serve Gateway’s members. After hours, he enjoys balancing the needs of his young family, surfing and snowboarding.
Gateway Bank
Zeb Drummond
Reverse mortgages: uses and advantages
With a reverse mortgage, borrowers are not required to make regular repayments, and the balance of the mortgage grows as the interest is capitalised onto the loan, unlike with a traditional mortgage where the balance is paid down – hence the term ‘reverse mortgage’, Drummond says.
“The borrower is required to repay the loan when they sell the property, move into permanent care, or pass away.”
Sharon Yardley is head of operations, risk and compliance at Heartland Finance. She says a Heartland Reverse Mortgage gives people aged 60 and over the ability to release and access the equity in their homes, while continuing to live in and own their properties.
“Without the need for regular repayments, and with full loan repayment only required when customers cease to reside in their homes, a reverse mortgage allows people to enjoy a more comfortable retirement, with the benefits of their community, social networks, and family,” Yardley says.
Heartland Finance offers a range of drawdown options, including a lump sum, regular advance (to supplement income), and a cash reserve (like a line of credit), or a combination of all three, says Yardley. “Importantly, interest is not charged until the funds are drawn down.”
Yardley says the ability to service a normal home loan in retirement is not always easy.
Home equity is the value of the borrower's home, minus any remaining debt. If they have paid off their mortgage, they have 100% home equity
The interest is capitalised, and there are set-up fees
The borrower repays the debt when they move out of their home, usually when they sell the property, move into aged care, or pass away
The market is set to more than triple in value by 2031
Global equity release market set to boom
More than $15bn of equity is released per year for homeowners
By 2031, the market value is expected to exceed $50bn
Reverse mortgages are the most common type of equity release
A lack of customer awareness is cited as the main barrier to market growth
Source: Global Equity Release Roundtable 2020 survey report by EY and the European Pensions and Property Asset Release Group. Data from 13 countries in Europe, the US and Australia
What’s driving growth in the sector?
Reverse mortgage offering
Why brokers should offer reverse mortgages to clients
Broker education
Aged care support
Heartland also has a dedicated online broker portal that contains all the information required for submitting an application, as well as marketing resources for brokers, an online submission platform and access to its lending system to track applications.
Drummond says Gateway’s reverse mortgage product can be used to support in-home care for seniors who want to remain in their homes but need some assistance.
Heartland also has an aged care option that is available for those residing in or moving to permanent long-term care, and this has a maximum term of five years, says Yardley.
Other products include a secondary property loan allowing customers to access the equity in their non-owner-occupied properties (holiday homes or investment properties), and a Well-Life Loan, which is an unsecured loan for people aged 55 and over. It provides access to a lump sum of between $5,000 and $40,000.
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TV
Resources
US
CA
AU
NZ
UK
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People
Newsletter
About us
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Contact Us
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Copyright © 1996-2023 KM Business Information Australia Pty Ltd.
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