Reverse Mortgages has grown five times since the Australian government’s Pension Loans Scheme (PLS) recorded data in the 2018-19 fiscal year.
The growth is spurred by retirees looking for ways to manage their cash flow in retirement while choosing to stay in their homes. This is based on a story published by the Sydney Morning Herald (SMH).
SMH Reporter John Collett reported that just 768 people had accessed the PLS at the end of the 2018-19 financial year, but the number increased to 4,039 by the end of March 2021.[ RELATED POST: Pension Loans Scheme: Government Reverse Mortgage to be Expanded ]
However, the addressable market is still lower compared to the conventional mortgage business, and the actual penetration rate remains very low. This is based on a panel discussion on retirement income hosted by Household Capital, a reverse mortgage provider.
According to James Hickey, Deloitte Actuary and partner, the current outstanding reverse mortgage market of commercial providers is only around $3.6 Billion.
“We consider at the moment that the market has only penetrated around 1 to maybe even up to 1.5% of the potential addressable market that we just discussed,” added Hickey.
Hickey further estimates that around $1 Trillion is presently tied up in the properties of pensioners, with roughly $300 Billion being accessible for equity release.
“About half of collective wealth in Australia (estimated at roughly 55%) is tied up in housing, the panelist’s explained, which would be skewed toward older demographics who would potentially benefit from the use of a reverse mortgage,” Hickey said.
Hickey added that reverse mortgages are still not widely popular because people aren’t informed about the financial product and its existence alongside age pension and superannuation.
“And therefore, without that awareness, then it’s not being taken up by consumers,” Hickey said.
So, what is a reverse mortgage, and how it can help Australian retirees?
Following this critical industry report, Seniors First highlights how a reverse mortgage can become a ‘solution’ to facilitate income for Australian retirees.
By unlocking home equity, a reverse mortgage can help finance the cost of retirement and offer more options for pensioners, such as staying at home.
Many seniors wish to stay and receive aged care at home to spend their retirement with their loved ones.
So, the prospect of selling the home and moving into an aged care facility is typically the last resort for many. This is one of the top reasons why reverse mortgages are growing in popularity (albeit not enough to reach market standards).[ Related Post: Reverse Mortgages in Australia, Seniors First Video ]
Seniors First offer reverse mortgages (also known as home equity loans) that will allow people from age 60 to unlock the equity of their homes to fund their needs such as aged care, debt consolidation, home renovation, and many more.
Like any other type of loan, interest will be charged, but you are not required to make regular repayments.
If you want to learn about reverse mortgages in detail, you can download our guide, Reverse Mortgage Secrets. This FREE special consumer report will help you learn more about reverse mortgages and how you can enjoy your home equity safely and save thousands.
You can also call Seniors First Finance at 1300 745 745 or post your comments below.
Real estate prices in Australia recorded the highest quarterly spike in the three months to June.
In the latest report from the Australian Bureau of Statistics (ABS), the prices of residential properties in Australia increased by 6.7%.
Image Source: ABS
ABS noted that the property market is now being supercharged by low housing stock and historically low cash rates.
Meanwhile, the Reserve Bank of Australia confirms that the housing rates are 19% higher than before the COVID-19 pandemic.
Real estate experts believe that the record volumes are set to spike again in Spring, which is traditionally a very strong period in Australia.
The record high in property prices is a welcome development among those looking to take out a senior’s home equity loan, commonly known as a Reverse Mortgage.
With a Reverse Mortgage, you can unlock your property’s equity so you can convert it into cash that you can use.
This financial product is quite popular among seniors who have already paid off their mortgage but are considered ‘assets rich but cash poor’.
Many of our clients at Seniors First apply for a Reverse Mortgage to fund their aged care accommodation, buy a more suitable car, or even go on a holiday.
With the increasing prices of homes in Australian cities, homeowners who have idle equity can take advantage of this economic situation to secure a higher loan amount.
Remember, the amount of equity that can be unlocked is determined by the owner’s age and the value of the property.
It is common for property owners to sell if the prices are high.
But for homeowners who are not keen on the idea of moving out, especially seniors, a reverse mortgage is an ideal solution.
Even with a home equity loan, the borrower will still retain ownership and stay in their property as long as possible.
Because you are still the property owner, you can still enjoy the possible rate increases in the future.
Repayments are voluntary, so the interest will be charged back to the loan and will compound over time.
The loan is considered paid if you sell the property, you move into aged care, or the last surviving borrower pass away.
Seniors First help pensioners understand how a reverse mortgage can help them live a more comfortable life during retirement.
If you are interested to learn more about reverse mortgages, please feel free to leave a comment below or call Seniors First on 1300 745 745.
You may also download our FREE REVERSE MORTGAGE GUIDE.
No plans to stop working when you hit 65?
You are not alone.
Recent data from Councils on Ageing (COTA) reveals that majority of Australians don’t want to stop working even if they reach retirement age.
While there’s no fixed retirement age in Australia, people are expected to stop working at around age 65 because that is the qualifying age for the pension.
But more and more people believe that is no longer realistic, and here are the top reasons.
Based on the estimates published by the Association of Superannuation Funds of Australia (ASFA), senior Australians who are not paying any mortgage and in relatively in good health need the following amount of money
But according to COTA, 45% of Australians don’t feel financially secure enough so they still continue working.
Superannuation is a hallmark of the Australian pension system. But the Coronavirus pandemic has significantly affected this reserved fund.
As markets plummeted since March last year, super balances were severely depleted as Australians choose to withdraw their super to survive the crisis.
Data from COTA shows that 54% of people aged 65 to 68 was planning to retire in February 2020 but that plunged to only 39% in March of the same year.
3. Physical & Mental Health
While finances are the number 1 reason why Australians don’t want to retire, some working seniors choose to stay in the workforce to sustain physical and mental health.
“Working longer promotes better financial health but we also now know it promotes much better physical and mental health,” says National Seniors Australia (NSA) chief advocate Ian Henschke.
In a study published by BMC Public Health retirees who are still in the workforce reported better health and wellbeing than those who stopped working.
In a recent article published by Sydney Morning Herald, Professor James Trevelyan said that retiring at age 65 is an outdated concept.
The 73 year old from Perth continues working full time as a self-employed engineer.
“Retirement only describes the walking dead,” he reckons.
Fortunately in Australia, the rights of seniors to continue working is protected.
As long as you are still fit, you have the right to stay without being discriminated against because of your age.
But the case may be different if you are a senior and you are looking for a job.
Older workers may find it difficult to impress employers and learning new skills and changing careers in the time of pandemic can be challenging.
What are My Alternatives?
Sadly, not all seniors will have the chance to continue working.
Many Australian seniors have to give up their work rights because of bad health.
And with retirement savings heavily affected by the ongoing pandemic, what are the options left for seniors?
One possible alternative is getting a reverse mortgage loan.
With this financial solution designed for seniors who are assets rich but cash poor, you can access your home equity.
Do you still plan to continue working when you hit retirement age? Let us know in the comments below!
At this present moment in Australia, standard home loan interest rates are charged between 2% to 3%. Personal loan interest rates are charged between 9% to 12%, and sometimes more depending on the bank you have the loan with. And Credit card loan interest rates are charged between 12% to 22%.
Most people think, a Reverse Mortgage rate would be higher, however reverse mortgage loans are currently around 4.5% to 6% at the present moment.
If you look at the 4 most common types of lending below, it helps to explain the difference.
Standard Home Loans: These loans assess your income, and determine a reasonable amount you can afford to repay every fortnight or/ month. From the lender’s perspective, they have the security of an asset that is likely to grow in value, with a debt which is reducing in value over time (due to your principal & interest monthly repayments). Note – Banks and lending institutions will not assess the age pension as income.
Personal Loans: These loans assess your income, and determine a reasonable amount you can afford to repay every fortnight or/ month, with a set repayment schedule. They are typically smallish loans, for example, personal loans for pensioners are often capped at $5000. They are not secured to a property or asset, so are a higher rate as they are higher risk for the lender.
Credit Cards: These loans assess your income and determine a reasonable amount you can afford to repay every month. However, there is no set repayment schedule, just a minimum monthly amount you must pay. They are not secured to a property or asset and are at an extremely high rate. They are high risk for the lender.
Reverse Mortgage: These loans are based on your age and the value of your property. There are no compulsory regular repayments, the debt plus any interest and fees is usually repaid when the property is sold in future. From the lender’s perspective, they have the security of an asset that is likely to grow in value.
Why is the interest rate for a Reverse Mortgage higher than a standard home loan? Because unlike a standard home loan the lender may not receive any of their capital back for 10 to 20 years – or even much longer. So there is a slight premium to the interest rate because it’s a different level of risk for the lender.
So are Reverse Mortgages interest rates high? It depends how you look at it. They are higher than a standard home loan, and if you are young enough, or have good income, then a reverse mortgage may not be for you. But if you are asset rich and cash poor with limited income, a reverse mortgage is much better than a personal loan or credit card. In fact, paying out credit card debt is one of the most common reasons Seniors First customers first establish a reverse mortgage.
Written by Andrew Cate, NSW State Manager.
Once the kids moved out, parents will sell the spacious family home with backyard and move into a smaller 2-bedroom apartment.
Or so we thought.
A recent article published by The Sydney Morning Herald reveals that doesn’t happen as often. Instead of downsizing, older couples and even singles choose to stay put in big homes. Market watchers reckon this scenario creates economic challenges.
With retirees choosing not to sell, fewer homes are available for younger families with children. This situation limits the supply of available houses and therefore increasing the housing rates in Sydney. Consequently, prime-age workers and their children are forced to find homes far from the business district.
This scenario affects the availability of the labour force in the CBDs as people prefer to settle at locations closer to their jobs.[ RELATED POST: You Don’t Need to Sell Your Home to Finance Your Retirement ]
The SMH article discussed the following reasons why Australian seniors refuse to downsize:
Many baby boomers reckon it is better to park off their wealth in real estate than release home equity through a reverse mortgage.
The price of real estate in Sydney has increased over the decades, and Baby boomers want to help their children.
Instead of paying rent, they encourage their kids to move in so they can save up fast to purchase their own home.
Grandparents also help in raising their grandchildren, which further saves up money for childcare.
In the past, Australians would love to retire in a beach house or a new location with ‘greener grass and fresher air.
But baby boomers today prefer to retire in the comfort of their family and friends.
They choose to stay in the family home because they like the urban lifestyle instead of rural retirement.
Some baby boomers are unsure about their future, so they choose to stay put instead of taking the risk.
With the rise of the knowledge economy, baby boomers are still in the workforce even if they are already retired.
Many of them are still hired as consultants or resource persons, so they need to stay put.
The quality of health services in the CBDs is better than in rural areas, so baby boomers choose to stay.
Baby boomers who tried looking for a smaller space found themselves in tight competition with first home buyers.
Primary homes are not included in the Age Pension means test. Thus, baby boomers may lose a portion or all of their entitlements if they downsize.
Another issue is the stamp duty on buying a smaller home.[ RELATED POST: How does a Reverse Mortgage affect your Age pension?
True, the low supply of empty nests affects the housing market and the workforce in Australian cities.
But is it right to blame pensioners for choosing to hold onto their family home that they have acquired through hard work?
We love to hear your comments about this issue.
National Seniors Australia (NSA) has requested a review of the Pension Loans Scheme (PLS), citing the high-interest rate is too high and not in sync with the record low official cash rates.
NSA is a lobbying group that represents more than 130,000 retirees in Australia.
In the group’s pre-submission, it asked the Treasury to reduce the interest charged on the PLS, which is a reverse mortgage loan sponsored by the federal government.
[ RELATED POST: Pension Loans Scheme: Government Reverse Mortgage to be Expanded ]
According to NSA, the current PLS rate of 4.5% is too high for pensioners who need to tap into their home equity to fund their retirement.
“Unfortunately, while the PLS is a good idea, it has been poorly promoted and has an unattractive interest rate,” NSA said. “This rate is especially off putting, given record low interest rates.”
The PLS is a home equity program backed by the Australian government that allows pensioners to unlock a portion of their real estate property to boost their retirement income.
This ‘government reverse mortgage’ is similar to the home equity loan offered by Seniors First because it also allows access to home equity to help “asset-rich, cash-poor” retirees.
But many retirees choose private reverse mortgages because the PLS don’t pay lump sum, and you may only use the proceeds as income stream bundled to your pension.
On top of slashed rates, NSA is also calling for the inclusion of the new “Home Care Loans Scheme” in the 2021 budget.
The new scheme will allow pensioners to use the loan proceeds to pay for aged care at a cheaper interest rate compared to the current scheme.
[ RELATED POST: ‘Government Reverse Mortgage’ (PLS) vs Home Equity Release Lenders ]
This suggestion is commendable because many retirees are using reverse mortgages to fund age care packages.
In the current PLS scheme, seniors may not use the proceeds for important aged care costs such as the Refundable Accommodation Deposit (RAD).
RAD is an upfront payment to the residential aged care home that ranges between $300,000 and $400,000.
The call from the NSA suggests that there is a growing demand for financing options to help older Australians live a comfortable retirement.
And with the effects of the COVID-19 to both global and domestic economy, many pensioners are looking into available options.
If you have any questions about reverse mortgages, please feel free to leave a comment below or call Seniors First on 1300 745 745.
Why do many people say reverse mortgages are not a good idea?
Understanding and learning how far they have come can help you bust the myths around it.
Here are four reasons why reverse mortgages have a bad rep:
In the past, a lot of reverse mortgages were based on giving the customer the full amount of money upfront.
While this may still have helped the customer, it meant interest was charged on the full amount drawn down from day one (even if the customer only needed the money gradually over time).
This caused the loan (and the debt) to grow quickly. Today, the big focus is to encourage customers to only draw down the funds as they need them, which significantly reduces interest costs.
For example, a new lender on the Seniors First panel gives the customer a debit card, a great way to only draw down a small amount of money as you go.
Reverse mortgages have come a long way.
A reverse mortgage is a financial product for asset rich, cash poor Australians.
If you have a good super, or a lot of money in term-deposits, a reverse mortgage may not be suitable.
At Seniors First, there are instances that we talk seniors out of the loan as they would be better off using their own resources. We also make sure that our clients fully understand the implications.
For example, there will be less to leave behind to your estate if you have a reverse mortgage.
Some people are outraged by the thought of this (and can be highly critical of others who do not feel the same), while some people have no children, or wealthy children, who may feel differently.
That is why it helps to talk to an expert at the start to guide you through all the implications, and make sure a loan like this is the right fit
Some people do not understand what life is like on the pension (especially a single pension).
I have heard many people criticise reverse mortgages who have never been on the aged pension.
People are often critical of things they do not understand. The single age pension has been described as a borderline poverty line.
When you do not have enough money to pay for dental, house repairs, car maintenance, or health emergencies, people on the pension sometimes rely on credit cards at 18% – 20% interest.
A reverse mortgage is between 5% – 6% interest, and you can still make repayments if you need to. Walk a mile in the shoes of a pensioner before criticising!
[ RELATED POST: How does a Reverse Mortgage affect your Age pension? ]
4. “REVERSE MORTGAGES HAVE HIGH-INTEREST RATES”
In the past, the interest rate on reverse mortgages was much higher compared to current rates.
But nowadays, new applicants can get a very competitive rate between 5% – 6%.
Here’s the thing: no two reverse mortgages are the same. It really helps to talk to an expert about your needs and circumstances.
We can explain the differences between lenders, the current rates and fees, and important considerations for your future.
To help you learn more about a reverse mortgage, you can download our free reverse mortgage guide.
You can also call Seniors First on 1300 745 745 to talk to a reverse mortgage specialist or visit www.seniorsfirst.com.au
In the 2020 Federal budget, two $250 payments were announced for pensioners following the $750 payments in earlier this year. The government will be spending $2.6 billion over the next three years on the payments to help stimulate the struggling economy and ease some financial stress due to COVID -19 pandemic.
It’s not only for pensioners, but if you receive certain types of the government payments, support or hold any of the healthcare cards, then you may be eligible.
For more information on eligibility check : Coronavirus (COVID-19) information and support
Many self-funded retirees are not eligible for these extra payments. In Australia, there are two million seniors who are fully/partly self-fund their retirement. However, their incomes have been cut by historic low interest rates, volatility in share market and rental markets during the coronavirus pandemic.
National Seniors Australia chief advocate, Ian Henschke, criticised the lack of attention given to self-funded retirees. While there has been major spending to stimulate the economy and ease financial challenges due to pandemic, there has been no federal support for them.
While it’s great to see the federal government delivering extra help to pensioners, there have been no specific measures of support for Self-funded retirees.
National Seniors Australia urged the government to consider the issues by the Treasury’s Retirement Income Review and have also made a recommendation to look at the taper rate, which cuts off the pension based on their assets.
Mr Henschke recommend Pension Loan Scheme, which can allow people of pension age to draw down on their home’s equity to help fund their retirement plans and this should be available at a lower rate.
Seniors First lending partners are available to help you through this difficult time.
If you are interested in reverse mortgage, new rates are available from 5.09%. By applying for a reverse mortgage solution, your home equity can be ‘unlocked’ and all eligible seniors can access more cash, to enjoy a better retirement lifestyle.[ RELATED POST: How does a Reverse Mortgage affect your Age pension? ]
If you want to know more about reverse mortgage, you can call Seniors First on 1300 745 745 or visit www.seniorsfirst.com.au
Due to the coronavirus pandemic, we want to inform all our clients and colleagues that Seniors First continues to serve its clients as before.
Seniors First lending partners are part of the banking industry and so are considered essential businesses and remain available to serve you.
Reverse mortgage rates are available from 5.15% and our lending partners can help you unlock your home equity to top-up lost share or superannuation income, possible future health expenses, and provide you peace of mind with access to funds at call.
To do our part to slow the spread of the COVI-19 virus, we are taking precautions to avoid close contact. All home visits have been cancelled until further notice.
Our reverse mortgage brokers can provide you reverse mortgage advice through online access only.
We are happy to answer your inquiries through a 100% remote solution (phone calls, email, or video conferencing).
If you are a current client and you have a circumstance that would require emergency access to information, please contact your local branch representative and ask for assistance to determine the best option for the situation.
If you are not able to talk with your branch, Seniors First Customer Service is available Monday to Friday from 9 a.m. to 5 p.m. Call us on 1300 745 745.
Seniors First is here for you in these challenging times. We will continue serving the needs of customers while considering the safety of our colleagues and the Australian public.
Thank you for your patience and understanding as we remain on high alert to keep track of the situation and implement needed changes to ensure continuity of service during these uncertain times.
We’ll continue to update you through email, Seniors First website, and our social media channels.
Thank you for your ongoing trust in us.
The impact a Reverse Mortgage may have upon your eligibility for the Aged Pension will depend on individual circumstances, and there are a number of important factors to consider. It ultimately depends on the purpose, and how you use the money from a Reverse Mortgage. There are three ways you can take Reverse Mortgage funds:
If the money is taken as a lump sum and spent on an asset that is assessable by Centrelink, such as a car, the value would count towards the asset test of the pension. This would also combine with your other assets (not including the value of your home) which could take you over a certain threshold and reduce your pension.
From 1 July 2018, the threshold where pensions begin to reduce is when your assets amount to more than the following.
Under Centrelink rules, if you draw a lump sum from a Reverse Mortgage, up to $40,000 is exempt from the assets test for up to 90 days, so the money needs to be spent within this time limit to avoid it becoming an assessable asset.
Any money drawn down is immediately subject to deeming by the Centrelink income test until you spend it. So for example, if you draw down $40,000, it will be deemed to be earning 1.75% (around $27 per fortnight). Single home owners can earn $172 per fortnight without affecting their pension, while for home owning couples, the amount is $304. If you purchase an asset that produces income, such as shares or an investment property, any derived income would be assessed as part of the income test.
Finally, if the Reverse Mortgage lump sum is spent on a non-assessable asset, such as home improvements or a holiday, then the amount would not be assessed under the income or assets test.
If the loan is taken as a regular income stream to spend on living expenses or non-assessable assets, then it would be unlikely to affect your pension. It is not counted as ‘income’ by the income test and, if spent quickly on bills and lifestyle, should have no effect on your age pension. But if the money builds up in your bank account, it is subject to the Assets Tests (see above).
Funds that are available to you for the future, but which are not yet drawn down, are not assessed under either the income or assets tests for Centrelink purposes.
(NOTE: some lenders have in the past offered Reverse Mortgages with an ‘offset account’ attached. Funds within an offset account MAY be deemed an assessable asset. If unsure, please consult with Seniors First).
The information in this fact sheet is for general information purposes only. It does not constitute Financial Advice, and should not be relied upon as such. While Seniors First used information published by Centrelink in developing this fact sheet, it is neither approved by Centrelink, nor attempting to speak on behalf of Centrelink. Rules and figures change, as do individual circumstances. Seniors First strongly encourages those seeking a Reverse Mortgage to speak to a Financial Information Services (FIS) officer at Centrelink directly about the effect (if any) a Reverse Mortgage may have on their pension entitlements.