One of the main concerns upon retirement is how to actually fund all of life's activities. The age pension doesn't exactly allow for a comfortable lifestyle, your super balance might not be sufficient or you might be reluctant to draw down on it, and traditional loan options can be unattractive. But what if you could fund whatever you wanted, and didn't need to make regular repayments? The answer lies in your home.
Heartland Well-Life Reverse Personal Loan Explained
The Well-Life reverse loan is for over-55s who own their home outright i.e. don't have a mortgage. Funds are accessed as a lump sum at the start of the loan up to the value of $40,000, and while you don't need to make repayments, you can if you wish. Interest will be added to the loan up to a limit of $65,000. Once it goes over this threshold you will need to make a payment to bring it below the limit.
You'll repay the loan plus interest if you sell your home, move into aged care - or pass away. This is done by using the equity in your home. The loan is unsecured, meaning it isn't mortgaged against your house.
Using this form of finance means it's quite possible to access a sizeable pile of cash to fund things in retirement without needing to pay anything upfront. This can be useful in retirement because cashflow can be pretty tight, yet the value of the home might be worth a lot - the old adage "cash poor, asset rich”.
Borrow from $5,000 to $40,000
Just because you can borrow up to $40,000 doesn't mean you should. You could borrow a small amount to fund a holiday or some activities, or a large amount for a car or some home renovations - or even a business venture.
Loan interest is variable, and with that comes the flexibility to make repayments with no penalty as you see fit. There are also no set terms or repayment schedules like with regular personal loans.
Use for a variety of purposes
There's no one purpose you can use the lump sum for. Use it to fund whatever you like, or stick it into a savings account to draw down as you need it - you don't need to spend it all at once.
Can transition into reverse mortgage
If you find the personal loan is not enough, you can usually transition the product into a reverse mortgage (you cannot have both at once). It's best to call Heartland here as a reverse mortgage comes with some extra considerations.
There are no application fees, monthly fees, or early termination fees. Such fees associated with the product include: settlement fee, a further advance, and a variation fee.
Calculating How Much You Can Borrow
The amount borrowable can be dependent on age, property value, and location. Heartland has a handy calculator to find out how much you can borrow. For example, someone aged 70 with a property value of $1 million in the postcode of 4060 (Ashgrove, Queensland) could borrow up to the full $40,000.
To be eligible for Heartland's person loan, the property must meet a few requirements.
It must be freehold i.e. not part of a strata title, and must be mortgage-free.
It must be of "conventional” construction and in good repair, and the minimum property value ranges from $300,000 to $400,000 depending on location.
Dwellings in retirement villages, rural properties or ones used for a specialist purpose are not permitted.
Differences between a Well-Life personal loan and reverse mortgage
While there are some similarities - you're using home equity to pay off a loan - there are several critical differences between the two products that Heartland offers.
You're borrowing less
With a Well-Life loan you're ultimately borrowing less - the maximum amount borrowable is $40,000. In contrast, reverse mortgages can offer six-figure loans.
But you could be borrowing a higher proportion of the home's value
Someone aged 55 living in Walcha NSW with a home value of $400,000 could borrow the full $40,000 - the same as a 70-year old living in Ashgrove Queensland with a property value of $1 million. This is slightly different to a reverse mortgage in that the maximum loan amount is more dependent on age, location, and home value.
Heartland's reverse mortgage requires the loan to be repaid within 12 months of the home's sale; with the Well-Life product, that requirement is immediately or within 30 days from when the last borrower moves permanently from the home. Extra time allowed will be considered by Heartland on a case by case basis.
It's unsecured, not mortgaged against the property
The Well-Life product is unsecured, which could provide more flexibility to fund the things you want without it being mortgaged against the property.
The minimum age for a Well-Life product is 55 years, as opposed to 60 for a Heartland reverse mortgage.
Fund a better lifestyle in retirement
A Well-Life personal loan can be used to fund pretty much anything you want - a new car purchase, a holiday, a better day-to-day lifestyle, gifts, hobbies, and more. This could be an attractive option as opposed to using super or relying on the age pension, which might not be enough.
Make use of equity
Equity is just numbers on a page until you put it to work. A Well-Life personal loan makes use of that equity by giving you a lump sum to do what you like.
A regular personal loan is usually for a set term - usually one to five years - and require regular repayments. A Well-Life loan does not require this, but you can make repayments if you like. This could help you lower interest payable while having the peace of mind that you can stop making repayments at any time.
It sits in the background
It can be a fuss-free way to access finance - you'll get a lump sum of money, and then receive statements every six months. If you can't make repayments, you won't have to pay anything until you sell the home.
An unsecured personal loan provides more flexibility, as it's not tied to anything - such as a car or home purchase.
Interest rates tend to be higher than home loans, and are more comparable with regular personal loans. Further, as you aren't paying down the principal loan amount until potentially years later, the interest bill could come as a shock. Heartland has a total cap of $65,000, but you could hit that sooner than you expect.
Interest is also compounded - calculated daily, and debited monthly. Compound interest essentially means your interest is charged interest. Interest rates are also variable, meaning they can go up and down.
Borrowing less than a reverse mortgage
At $40,000 maximum borrowing limit, this is significantly less than the potential hundreds of thousands on offer from a reverse mortgage. However, you might not need that much either.
Fast settlement could be necessary
A Well-Life loan is required to be repaid immediately on sale, or within 30 days of moving permanently from the home. While you can negotiate with Heartland to extend these terms, this likely means if you sell your home you'll want a fast settlement from the buyer. This likely means a 30 day settlement is required - this means money in your bank account from the sale in that timeframe.
Can't use reverse mortgage too
You can't use both a reverse mortgage and a Well-Life personal loan on the same house at the same time. You could however transition into a reverse mortgage product.
Could eat into inheritance
If leaving something for your loved ones is important to you, a Well-Life product relies on equity to pay back the loan. This essentially lowers equity, and means if you die and your benefactors sell your home, they might not get as sizeable a nest egg.
Photo by Matt Bennett on Unsplash