Reverse Annuity Mortgages

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Introduction to reverse annuity mortgages

Reverse mortgages (also known as reverse annuity mortgages and home conversion loans) are designed to help those retired households which are "asset rich and cash poor".

The classic, and increasingly common, scenario is that people retire with a single asset: their house. Their only source of after-tax income is the government super, of around $12,500 for a single person, or $19,500 for a couple. The result, therefore, can be a huge need for additional retirement income, and that's where the concept of the reverse mortgage comes in. It effectively allows you to sell part of your house and use the funds to either supplement your regular income, or spend a lump sum on home maintenance, medical care, or even a big overseas trip.

Essentially, a financial company will give you X amount of money. This can be in the form of a lump sum (home equity conversion option), or as a regular monthly income (reverse annuity mortgage). You then pay back the loan, with interest. And this is the beauty of the concept: you don't physically pay back any money. The debt is built up and is generally only repaid once the house is sold. Hopefully, that's when you've either moved upstairs, or into permanent care.