Every reverse mortgage ends one of four ways. You pay it off. You sell the house. You move into care. You die, and the estate sells. Each has its own mechanics, and the care scenario in particular has consequences that are better understood at the start than discovered in a hospital corridor.
There Is No Penalty For Paying It Off Early
Because the rate floats, there is no break cost. You can repay part or all of the loan at any time. Heartland asks that a minimum balance of $5,000 remains unless you are closing the loan completely, in which case a $270 discharge fee is added to the final payment and your solicitor arranges the discharge of the mortgage from the title.
Three patterns are common. Some clients pay the monthly interest while they still have part-time income, which holds the balance where it started. Some make a lump-sum repayment when a term deposit matures or a bequest arrives. A few repay in full when a child offers to lend the money instead, which converts bank interest into family goodwill.
Within 30 days of settlement, Heartland also refunds the arrangement fee if you repay in full, which is the cooling-off period.
What Happens When One Partner Moves Into Care
Nothing, as far as the loan is concerned. The other borrower continues to live in the home under the same terms, with the same lifetime occupancy promise. The loan is not called up because one borrower has left.
Two things change in practice. The household income usually falls, because part of the Super and any care costs now go elsewhere. And the house may need adapting for a single occupant. Both are reasons families sometimes draw on a reserve at this point, and both are reasons to have set one up.
What Happens When Both Of You Move Out
When the last borrower moves permanently into long-term care, the loan becomes repayable. Heartland allows up to twelve months to repay, with interest accruing in the meantime. The usual path is a sale, with the loan settled from the proceeds and the balance going to you.
A long but temporary absence, such as a hospital stay or respite care, does not trigger repayment. The line between temporary and permanent is set by the lender’s terms, and your solicitor should show you exactly where it is before you sign.
Selling The House With A Reverse Mortgage On It
The sale proceeds in the ordinary way. Your solicitor obtains a settlement figure from the lender, the loan is repaid from the sale proceeds on settlement day, the mortgage is discharged and the balance is paid to you.
If you are buying another home, the lender may agree to move the loan to the new property. This is not automatic; the new property has to meet the lender’s criteria, and the loan-to-value position has to still work. Talk to the lender before you sign an agreement to buy, not after.
If you are moving into a retirement village, the loan cannot usually follow you, because village units are not freehold. Heartland’s separate Village Access Loan exists for the gap between buying into a village and selling the house.
How A Reverse Mortgage Interacts With The Residential Care Subsidy
The Residential Care Subsidy is means-tested on income and assets, with thresholds adjusted each year. For a single person, or a couple both in care, the family home counts as an asset above the threshold. For a couple where one partner stays at home, the home is exempt.
A reverse mortgage affects this in two ways. Money drawn from the loan and held in a bank account is a cash asset and counts. And the loan reduces the net equity in the house, which may reduce the asset value assessed, though the rules on how debts are treated are specific. Gifting money from the loan to family in the years before applying can also be counted under the gifting rules.
The effects can run either way, and they depend on the household. I am not able to advise on entitlements. Work and Income assesses the subsidy and will tell you how a reverse mortgage would be treated in your case; ask before you borrow if care is a realistic prospect in the next few years. Where the subsidy is not available, Work and Income’s Residential Care Loan, secured against the home, is another route worth asking about.
Planning The Exit From The Start
The useful question at the start is: how does this end? If the honest answer is “we will sell in five years”, a reverse mortgage may be the wrong tool. If it is “we are staying until we cannot”, a modest loan with a reserve and equity protection is built for exactly that.
I go through the exit with every client before they apply, including the care scenario, because it is the one families least want to think about and most need to. The advice page explains how that conversation works.
