Narelle has tried to apply for reverse mortgages but has been rejected because she doesn’t live in a capital city. What are her options?
I’ve inquired several times over the year about reverse mortgages and am told that I’m not eligible because I live outside the capital cities. Why is this?
A. The two main restrictions when applying for reverse mortgages are your age (you must be over 60 years of age to secure a reverse mortgage) and the location of your house.
I spoke to Tracey Franks from Household Capital and she explained that location was an important factor as it affected the security of the loan, and loans were more secure in ‘valuable’ locations.
Read more: Do you qualify for a household loan?
Despite these restrictions, Ms Franks explained that Household Capital had issued loans to people in regional areas and that each application was assessed on a case-by-case basis.
Some other providers do have blanket restrictions based on location. For example, Homesafe, which offers a wealth release product, is only available to people who reside in Melbourne or Sydney.
The advice here is that just because an application has been rejected by one provider, you should still shop around and see whether there are others willing to consider your request.
Some providers when considering how ‘valuable’ a location is will look at demand for the area, how many people have moved into the area in a given time frame and how long properties in the area stay on the market.
Ms Franks explained that using these factors as a guide allowed most lenders to make reverse mortgages available in most established suburbs in capital cities and some growing regional centres.
The credit policies under which individual lenders operate can also impact where they are able to offer loans.
Read more: Seven reverse mortgage myths busted
If you have tried all lenders and are still deemed ineligible, you should still be able to access the government’s Pension Loans Scheme (PLS).
The PLS allows retirees to receive up to 150 per cent of the Age Pension, minus any pension they already receive, as debt against their home.
The equity drawdown is repaid after the final retiree living in the house dies. But participants are charged 4.5 per cent interest for the privilege.
Have you had an application for a reverse mortgage rejected? What reason were you given?
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