The asset-rich and cash-poor can tap into equity in their home if they have to move to aged care.

What it is Lenders are finding new ways to provide money to Australia's asset-rich, cash-poor ageing population. Reverse mortgages are now the fastest growing segment of the mortgage market. Bluestone Equity Release has launched a product that helps the borrower meet the cost of an accommodation bond when the time comes to move out of the family home and into aged care.

The Bluestone Equitytap Accommodation Bond lets you borrow to finance the bond so that you don't have to sell the family home.

How it works Reverse mortgages give borrowers with little or no income access to cash. The mortgage is secured against the home and funds can be drawn down as required.

The loan is usually paid out within six months of the borrower moving out of the family home.

Interest rates on some reverse mortgages are fixed, so are stable for the life of the loan, and some are floating. The better loans have a "no negative equity" clause, which means that even if the debt exceeds the value of the property, the excess is not claimed from the estate or other family members. And many state that the property will not be sold until both partners have moved out.

"Reverse mortgages won't suit everyone," says Patricia Reeve, a policy officer with Council on the Ageing, Victoria. "In fact, I think they suit very few people because you pay dearly for what you get."

Reeve says most people don't make any payments off their loan because they have limited or no income, so interest payments can balloon.

The difference between a typical reverse mortgage and the Bluestone product is that you can move out of the home. You could possibly borrow the money from Bluestone to finance the accommodation bond and then rent out your home. There's no compulsion to pay off the loan when you vacate the house.

And using a loan to finance your accommodation bond might open up the opportunity to increase your income without jeopardising any Centrelink benefits.

Pros The bond provides choice for people with limited access to cash, says Basil LaBrooy, a community education officer with the National Information Centre on Retirement Investments. The centre is an independent body that provides free, confidential information on retirement investments (call 1800 020 110).

"As it stands, if you own a family home and you are moving into an aged-care facility, you are expected to pay an accommodation bond. But the bond might be $125,000 - money you might not have even though you own a lovely home. This reverse mortgage allows you to keep the home and pay the bond with borrowings," LaBrooy says.

Everyone should get advice applicable to their circumstances, but LaBrooy says borrowing can be advantageous even late in life.

As an example, he says, if a retiree has $100,000 but needs a further $25,000 for an accommodation bond, they could borrow $24,000 to pay the bond, leaving $1000 outstanding. The interest charged on the outstanding amount of the bond (in this case just $1000) is paid in instalments. The family home could be rented out and the income used to either pay back the loan or meet instalment payments, or both.

LaBrooy says neither the family home nor the income derived from it is counted by Centrelink in this case, but the income is taxable.

Ken Mitchell, the general manager of Lifetime Planning, says there are no rules affecting how much income must be derived from the rented home: "You could get $5000 a week or $50 a week if it was rented out to another family member. It won't affect your Centrelink benefits."

Peter McGuinness, chief executive of Bluestone Equity Release, says there are myriad reasons why people don't want to sell the family home while trying to settle an aged parent into new accommodation. "They should be two separate decisions," he says. "One is traumatic enough without having to deal with selling the home as well."

Cons The loans are not cheap and not everyone, in their retirement, wants to move out of home into aged care and become a landlord.

The interest rate on this loan is 8.59 per cent, fixed for the life of the loan. If the loan is for $100,000 or more, there are no fees. But if it is less than $100,000, a fee of $595 applies, which includes a property valuation.

The interest rate is higher than Bluestone's standard reverse mortgage rate of 8.39 per cent, because the standard rate has a more certain pay-out date: six months after the owner moves out of their home. The new product is not repaid until the borrower's accommodation bond is returned.

If you have an existing reverse mortgage you can change it to cover an accommodation bond and there are no "switching fees" as long as the property does not have to be revalued.

Loan-to-value ratios are set taking into account the borrower's age and the value of the property.

Reeve says borrowers should check options for financing an accommodation bond before locking into a reverse mortgage.

Some aged care facilities let residents pay just the interest on their accommodation bond in instalments. This differs from one facility to the next and the interest rate can be quite high.

But it might be a better option than quickly selling the family home, or borrowing via a reverse mortgage, she says.

"If you need the money then it is an option," Reeve says. "But these things are not universally suited to everyone."

LaBrooy says another major negative is that the interest on reverse mortgages compounds and beneficiaries could be left with little or no inheritance.

Other costs that can be overlooked include valuation fees, LaBrooy says. Valuations may have to be carried out every three or four years.

He adds that the property has to be satisfactorily maintained, otherwise the lender may have maintenance work carried out at the borrower's expense.

Where it fits in The Over 50s Investment Group has a similar product, with a floating rate at 8.25 per cent and fixed rates that range from 8.3 per cent for two years to 8.4 per cent for eight years.

Chris Martin, the group's managing director, says borrowers don't need to switch between a standard reverse mortgage and a loan that covers accommodation bonds.

"It is the same product," Martin says. "We just have more relaxed repayment terms than some of our competitors."

But these two lenders are the only providers that let owners borrow and then move out of the home.

"These products just provide more options for people," LaBrooy says. "They offer people a lot more flexibility and choice. It wouldn't be hard to have a $1 million home today but no cash. This gives you access to that money."