Unexpected financial emergencies can threaten anyone, with a sudden medical procedure perhaps being the most worrisome. While anyone can suffer an injury or accident, it’s an unfortunate fact that human bodies, like cars, generally require more maintenance and repair as they age.

For this reason, many retirees feel reassured by having a source of available funds even if they never need it, and this can be provided by a reverse mortgage. Arranged properly, a reverse mortgage can be set up and then left alone to serve as a rainy-day line of credit, without incurring interest charges until funds are actually withdrawn.

As reverse mortgages draw on the equity in one’s home, they do not require repayment until the property itself is permanently vacated or sold, generally when the homeowners go into aged care facilities or the estate is settled. This ready access to funds without incurring a monthly note explains why reverse mortgages are becoming increasingly popular among Australia’s retirees.

Particularly when the adult children are already living well without the benefit of an inheritance from their parents, there’s no reason retirees should worry about money, request a loan from family members, or deny themselves medical care when the equity in their home is available for use if needed.

Properly arranged, a reverse mortgage can function as just such a line of credit. As with any financial product, different lenders offer different packages, and one must read the fine print to ensure the product agreed upon meets one’s needs. In such circumstances, the advice of a solicitor and a financial planner are helpful and are generally required by reputable lenders prior to closing the deal.

There are additional benefits to arranging a reverse mortgage as an available line of credit rather than taking the funds as a lump sum. One of these benefits is that interest is charged only on the money actually advanced, and therefore the total amount of the loan at repayment tends to be lower with a line of credit than with a lump sum disbursement.

Another benefit is that amounts withdrawn from a line of credit are generally not assessed as income by Centrelink. Amounts of less than $40,000 are not counted as assets if spent within 90 days, as would be the case if the money were withdrawn only when needed, for example to pay for a medical procedure. One should, of course, discuss this thoroughly with a Centrelink representative as well as one’s solicitor and financial planner prior to withdrawing any funds and risking one’s benefits.

To serve as a line of credit, a reverse mortgage should contain certain features. Although application and set-up fees are expected, they should not be outrageous. There also should not be exorbitant charges for repeated withdrawals, should one need to access funds multiple times; some lenders charge as much as $400 per withdrawal. Every reverse mortgage should contain a guarantee of no negative equity, to prevent the loan from overwhelming the value of the house; and some lenders even allow for protection of a certain percentage of the equity to ensure a legacy for one’s children, whether they require it or not.