I was recently quoted in an opinion piece written by Bina Brown and published by the Australian Financial Review. Entitled “How to use the budget pension loan scheme for aged care help”, the article explores the idea of unlocking the family home as the “fourth pillar” of the retirement income system.
The decision of the government to extend the Pension Loans Scheme (PLS) to include all eligible retirees can be perceived as a validation of our efforts in the private sector to promote reverse mortgage as a sound way for Australian seniors to live a better retirement.
[ Related Post: Pension Loans Scheme: Government Reverse Mortgage to be Expanded ]
Through a reverse mortgage, also known as a home equity loan, eligible seniors can unlock the wealth of their home without the need to sell the property. The loan proceeds can be used to improve the standard of living during retirement.
In the article, I expressed my belief that the PLS extension will be of greatest benefit to full pensioners with no other options to increase their income. However, it is also a fact that the scope of this “government reverse mortgage” is limited because it doesn’t offer a lump-sum option.
The PLS can only be taken as an income stream that is added to the borrower’s pension. In comparison, a reverse mortgage loan from Seniors First can be accessed in three ways:
With my experience in helping senior borrowers unlock home equity through reverse mortgages, most people want only a small to a medium lump sum, often with further access to a standby fund to mitigate longevity risk. At Seniors First, the average loan we originate is around $85,000, and the loan proceeds are often used for debt consolidation, home improvements, and aged care financing.
[Related Post: Changes in Pension to Boost Interest in Reverse Mortgages ]
PLS is fairly limited because it will not help Australian seniors who need a sizeable lump sum needed for residential aged care in form of the Refundable Accommodation Deposit (RAD). The RAD is an upfront lump sum payment to the aged care home, which may average between $300,000 to $400,000. However, the income stream for PLS can be used to settle the Daily Accommodation Payment (DAP) that is another option to move into aged care.
While the extension of the PLS is commendable, it is not for everyone. If you need a lump sum amount to pay for aged care and other needs during retirement, a reverse mortgage is another option available.
To help you learn more about reverse mortgages, you can download our FREE REVERSE MORTGAGE GUIDE. You can also call Seniors First Finance at 1300 745 745 or post your comments below.
Australian seniors with full age pension entitlements can now access the government-funded Pension Loans Scheme at a max of $17,800 annually as part of the key changes introduced in the 2018 Federal Budget.
The Australian Government has been offering the Pension Loans Scheme through the Centrelink as a voluntary reverse equity mortgage for older Australians who need to supplement their retirement income.
In the private sector, we see this government program as a validation of our efforts to promote reverse mortgage as a way for seniors Australians to live a better retirement. The recent expansion further attests to the benefits of tapping home equity to fund needs during retirement age.
If you are still not aware, a reverse mortgage will allow you to access the wealth of your home without the need to sell it. Basically, the loan proceeds can be used to improve the standard of living when you stop working.
Relying on Age Pension may not be enough to live a comfortable retirement. Many pensioners don’t have the ready cash for their everyday expenses, but they are living in homes that are valued at hundreds of thousands. Instead of selling it, you can instead convert a percentage of the property to cash that you can use for various needs such as aged care, home renovation, debt consolidation, and even buying a car.
[ Related Post: Reverse Mortgages in Australia, Seniors First Video ]
The Pension Loans Scheme is quite similar to the reverse mortgage offered by Seniors First because it also uses the home equity in providing a loan for seniors.
With the current expansion, Australian seniors, including self-funded retirees and full-rate pensioners can access the loan up to $17,800 for couples without affecting their age pension entitlements. The loan should be repaid if the pensioner decides to sell the property, move into an aged care facility, or passes away.
Aside from the expansion of the Pension Loans Scheme, Australian seniors may now avail of the additional 14,000 home care packages, and the improved Pension Work Bonus.
These recent changes are commendable because they could help age pensioners improve their lives. As one of the leading providers of reverse mortgages, Seniors First is dedicated to helping Australian seniors enjoy financial freedom in retirement.
If you want to know more about reverse mortgage, you can call Seniors First on 1300 745 745 or visit www.seniorsfirst.com.au
Many Australian seniors still believe in the myth that the bank will take over the property if they put it under reverse mortgage. This is a pure misconception as the borrower will remain the full legal owner of the property, and the lender will only take the mortgage.
It is crucial to really understand how reverse mortgage works so you can be guided on how the product can help you during retirement and avoid losing the property.
Because of the property boom in the last few decades, many Australian seniors now are considered as “asset rich, but cash poor”. After years of working hard and paying off their mortgages, the value of their homes have surged, but the equity is unlocked and their disposable cash is limited.[ ALSO READ: Changes in Pension to Boost Interest in Reverse Mortgages ]
A reverse mortgage is a type of loan designed for retirees and pensioners who wish to unlock a part of their home equity so they can have the money they need for aged care fees, home renovation, additional regular income, and more.
Like the usual home loan, a reverse mortgage is also secured by the registered mortgage over the property. The amount of equity that can be unlocked depends on the age and the value of the property.
The interest is ‘capitalised’ -charged back to the loan account – and will compound over time so the balance of the loan will increase unless voluntary payments are made.
The debt, including all interest and fees owed, is repaid to the lender when:
One great advantage of getting a reverse mortgage is that you can choose to stay at your home as long as you want. There is no need to move into an aged care facility or downsize.
As long as the borrower does not ‘default’ under the agreement by breaching key obligations, the bank cannot force a sale of your home.
[ ALSO READ: You Don’t Need to Sell Your Home to Finance Your Retirement ]
Reverse mortgage contracts vary between lenders but common default conditions include failure to pay council rates, keep the property fully insured, and wilful neglect or damage to the house.
To help you learn more about reverse mortgage, you can download our FREE REVERSE MORTGAGE GUIDE.
You can also call Seniors First Finance at 1300 745 745 or post your comments below.
Reverse mortgages are loans for pensioners and retirees that are designed specifically for older borrowers who are typically ‘asset rich’ but ‘cash poor’. Known variously as ‘senior’s loans’, ‘reverse home loans’, and ‘senior’s finance’, reverse mortgages are the most popular form of home equity release in Australia.
This financial product will allow people from the age of 60 to convert the equity in their property into cash for any worthwhile purpose. No income is required to qualify. Although interest is charged like any loan, the borrower is not required to make repayments (although they can usually make voluntary payments if they wish).
For those who are not well aware of the benefits of reverse mortgage loans and the existing regulatory policies of the Australian government, getting a home equity loan can be perceived as a risky or complicated. Some potential borrowers are also not completely sure about the benefits of getting the loan.
In order to help people address these concerns, Seniors First highlighted five of the most common myths about reverse mortgages and why we should debunk them.
Many senior Australians still believe that the bank will take over the properties under reverse mortgage. This is not true. The borrowers will retain their full legal ownership of the property and the lender will only take the mortgage.
As long as you don’t breach any key obligation or you do not default on the loan, the bank cannot sell your home. Reverse mortgage agreements vary from one lender to another, but the typical default condition includes damage to the property, willful neglect, non-payment of property insurance, and non-payment of council rates.
Reverse mortgage loans are among the most heavily regulated financial products in Australia through the Australian Securities and Investments Commission (ASIC). These regulations stipulate crucial borrowers’ protection including the No Negative Equity Guarantee.[ALSO READ: ASIC Mortgage Broker Review]
The percentage of equity that you can unlock depends on the value of the property and the age of the borrower. Even though lenders have various policies on how they approve the loan. It is crucial to take note that borrowers will still retain full ownership of the home so they can choose to stay in the property as long as they want.
There is no need for repayment, but the interest will be charged back to the loan. It will compound over time so the loan balance may increase unless the borrower makes voluntary payments. The loan, inclusive of all fees and interest, will be repaid once the last surviving borrower dies (for elderly couples), the borrower moves into aged care, or the borrower sells the property on their own preference.
As the Australian market develops, reverse mortgage loan products are increasingly sophisticated and becoming more flexible. Hence, it is no longer a last resort option if you need money during retirement. With a reverse mortgage from Seniors First, you can choose to receive the proceeds in:
Hence, you can design your loan drawdown options according to your preferences and needs. If you need money to upgrade your home to make it more comfortable during your retirement, you can choose to take a lump sum. If your aged care pension will not suffice, you can choose a regular income stream so you can live a more comfortable life.
In the past, lenders offered a range of different interest rate options, including fixed, capped, and variable. However today there are only variable interest rates available for reverse mortgage loans.
Among the most common concerns that most retirees have about reverse mortgages involve how the loan will affect their capacity to leave the property to their children.
If you get a reverse mortgage, you can still leave the property to your children once you pass away. However, you will not leave them the whole value of the home. It is crucial to understand how the product works before you sign up because your children will have to repay the loan if they wish to keep the property.
Some lenders offer an option called ‘Protected Equity’, which guarantees that a requested proportion of equity is preserved for beneficiaries (it also means you can’t borrow as much). If you choose a loan without protected equity, then the amount of equity you will have left will be determined by the following factors:
Although the interest will accumulate and compound, based on past trends your property should also increase in value over time, offsetting the increasing loan balance.\
As with any type of home mortgage loan, there are also fees in establishing a reverse mortgage – known as set-up costs – that vary depending on the property value, market conditions, interest rates, and loan terms. The fees and interest rates are also calculated according to several factors such as your life expectancy, number of expected years in the property, any existing mortgage balance or liens, the property’s postcode, and your age.
With all the needed details, a reverse mortgage specialist from Seniors First can help you determine the associated fees and exact interest rates for your particular loan.[ALSO READ: The Advantage of Taking a Reverse Mortgage Now ]
With Seniors First, you may need to set aside $1,500 to $2,000 in total to establish your reverse mortgage loan. This amount includes the main costs such as the lender application fee, government charges, your legal advice fees, and any broker fees. This is an estimate only; you could pay more depending on the circumstances. If you are low on cash, you can usually elect to pay these reverse mortgage costs from the loan proceeds.
A reverse mortgage from Seniors First can help you finance the life you want during retirement. If you need more information, or if you want to clarify anything about getting a reverse mortgage, call Seniors First on 1300 745 745. You can also download our FREE GUIDE.
Research from global wealth and retirement consultant Mercer shows that more than 60% of retirees face a looming crisis of running out of money before they die. Most Australian seniors only have enough savings to last 14 years beyond retirement and may outlive their savings by five years.
So if you don’t have enough savings for your retirement, there’s a high chance that you will find it hard to make ends meet once you stop working. One way to live a comfortable retirement is to obtain multiple sources of income, which will not only sustain your daily expenses but also protect you from different financial risks.
Below are possible income sources that you can establish during retirement:
Superannuation is a primary source of retirement income. One major advantage of super is that you may pay less tax than if you choose to invest your money outside super. There is also no limit on how long you can keep your money in your super fund, and you can access it anytime during retirement. The disadvantage of super is that it is locked away until you are between age 55 and 60.
But take note that several changes on super tax concessions and contributions were implemented on 1 July 2017, which you can read all the details by visiting the website of the Australian Tax Office (ATO).
When it is time to access your super, you can take the money as a lump sum or draw down as a regular income.
Another form of retirement income that you can receive is the pension from the government. Most Australian seniors are now depending on age pension as their primary source of retirement income.
The amount of pension you can receive largely depend on how much income you are receiving from other sources as well as the value of your assets.
[ Related Post: Age Pension Qualification Age Changes Next Year ]
There are several types of pensions that you may receive depending on your individual circumstances such as:
You can learn more about each type of pension including your eligibilities by visiting the Department of Human Services’ Guide to Australian Government payments.
Aside from superannuation, there are also numerous investment opportunities that you can add to your portfolio to diversify your income. You need to make sure that your money will last for around 20 years or more so it is ideal to find investments that can outpace the inflation rate in Australia.
Common investment vehicles ideal for retirees include equities, investment properties, term deposits, and managed funds.
You must think carefully about your investment strategy, because there is always the risk of losing your retirement income. You can manage the risk by diversifying your investments and be sure to get professional financial advice before you even put your money into any investment vehicle.
Even during retirement, many Australian seniors are willing to work past age 65. Many are using the opportunity to still get into part-time employment as a way to ease into full retirement.
Some retirees also choose to work part-time as a way to still earn income and continue to grow their super. While other seniors who are not yet qualified to receive age pension can have the opportunity to semi-retire and still receive some income.
In particular, women retirees usually benefit from working past retirement age. Because of lower incomes and career breaks, many Australian women don’t have enough super to sustain a comfortable lifestyle during retirement.
If you are already 60 years old, you own your home, and need additional income, you can unlock the equity of your home and convert it into lump sum cash or income stream.
This is usually a recommended product for retirees who have already paid off their mortgages and need cash for their expenses such as aged care, debt consolidation, home renovation, and more.
[Related Post: Reverse Mortgages in Australia, Seniors First Video ]
Those who are qualified for a reverse mortgage can take advantage of the following:
But despite of these benefits, stricter regulations in Australia requires lenders and brokers to be more responsible in offering reverse mortgages. Hence, not everyone can just take this loan.
In general, retirees who are willing to decrease the proceeds from the sale of their property by the loan amount plus interest charges are ideal candidates. These are usually retirees who want to stay in their homes until they pass away. Retirees who are also looking to decrease their taxable estates may also be ideal candidates for reverse mortgages.
To help you learn more about reverse mortgage, you can download our FREE REVERSE MORTGAGE GUIDE.
You can also call Seniors First Finance at 1300 745 745 or post your comments below.
By the time you retire and decide to stop working, your income will be greatly affected as well as your lifestyle. You will lose your regular income stream from your salary, and you have to rely on age pension, or if you have managed to invest early on, you can access your superannuation funds.
But not all Australian seniors have managed to save enough money to make sure that their retirement will be comfortable. Based on a survey published by Mortgage Choice, 3 out of 5 Australians feel they don’t have enough money for retirement.[ RELATED POST: You don’t need to keep working until 70! ]
After years of working hard and paying your mortgage, you may have enough home equity or even achieve full ownership of your home. One common solution for retirees who need additional cash is to sell their homes. Aside from looking for a new place to live, there are also financial and emotional factors that you need to consider before you sell your home outright.
Bear in mind that your age pension entitlement will depend on the income you receive (income test) and the value of your assets (assets test). Hence, selling your home will have an effect on the amount of pension you can receive from the government.
Under the assets test, your home and the land it is built on are not counted. If you decide to put your home on the market, the proceeds will be exempted from the assets test for a year, as long as you are planning to buy another home. But take note that the proceeds from the sales of your home will be counted under the income test.
For example, a 68-year-old widow from Sydney decides to sell her home after her husband died and her children moved out. She is expecting to sell her family home for $750,000, buy a smaller apartment for $400,000 and have $350,000 spare cash. After selling her home, the $350,000 was counted on the assets test, which has resulted to lower pension.
Selling your home where you have raised your children and made good memories with your loved ones can be stressful and often difficult for retirees. There’s no place like home, and it will help Australian seniors to spend their retirement years in the comfort of their neighborhood. Some retirees become unhappy after choosing to downsize and live in retirement villages. And once you sell your home, it is gone. It will difficult to find another place or buy your own home again.
In addition, the Australian Government recognises that many Australian seniors prefer to stay in their own homes as long as they can. That is why the government is now improving its aged care system in order to support older Australians to stay at home longer.
Instead of selling your own home and moving into a smaller apartment and in an unfamiliar neighborhood, you can try getting a reverse mortgage that will allow you to unlock the funds you need and still enjoy the comforts of your own home.
Through a reverse mortgage, you can borrow money using your home as a collateral. You have an option to take the loan as a lump sum, a line of credit, a regular income stream, or combination of these options. One of the advantages of a reverse mortgage is it doesn’t require a specific income to qualify, unlike other loans.[ RELATED POST: The Advantage of Taking a Reverse Mortgage Now ]
You also don’t need to make repayments while you are still living in your home. You can stay at your home for as long as you want and the only downside is that interest compounds over time. The loan must be paid in full once you sell your home, move to an aged care, or when you pass away.
Selling the family home or taking a reverse mortgage are important concerns that you should not decide on a rush. Be sure to consult a financial adviser who specializes in retirement planning and reverse mortgage products. For expert mortgage advice, call Seniors First on 1300 745 745 or send an email to firstname.lastname@example.org.
If you are born in or after 1966, you are a candidate for the new pension eligibility requirement that will take effect in 2035. By that time, you need to be 70 years old and above in order to be eligible for age pension.
If you don’t have access to additional source of income, that means you need to be working until 70 in order to afford daily expenses. Although the new rule is ridiculous, tightening pension entitlement is needed in order to have a sustainable budget in the future, according to officials.
If you are having a hard time securing a regular employment at 45, how much more when you turn 50 or 60? Let’s be realistic that when it comes to Australian workforce, you get less desirable as you age. Older workers find it hard to impress employers. Also, learning a new skill and changing careers in middle age is often challenging.
Surviving in the workforce until 60 is hard enough to say the least, and now the government wants us to work until 70?
You can always stack up on savings or super, but there’s still no guarantee that it will be enough to afford an early retirement. People usually rely on pension entitlements for their retirement and any additional income will be put on small luxuries or lifestyle upgrade that they definitely deserve after long years of working.
Now, when all else fails, a reverse mortgage is a great way to fund retirement especially if you are a cash-poor but asset-rich retiree. You can access the equity in your home and you won’t even have to pay the loan until you move out, sell the property, or die.
The rising cost of living and strict pension eligibility requirements are expected to give a boost for equity release sector in the months to come. Early this year, a cutback in both pension and part pension entitlements has affected more than 300,000 older Australians. It is certainly a difficult time for most seniors in the country, but with proper financial planning and access to right financial products, we can make things better for everyone.
Since it was introduced a decade ago, reverse mortgage has received a lot of expectation. People who were approaching retirement saw reverse mortgage as an additional retirement funding option, but still, the interest in the product was low because of high interest rates.
With a home loan, you take a lump sum loan and repay in installments. In the case of reverse mortgage, you take the loan in installments and repay the lump sum later. Interest rates of reverse mortgage are usually higher though. Because even though lenders receive payments later, they already need to pay tax on the accrued interest of the loan. This increases costs on part of the lender.
The lenders can only recover the loan after the borrower moves out the house, sells the house, or dies. This postpones the recovery of the loan and adds risk to the lenders. This is usually accounted in the amount you can borrow.
On the positive side, borrowers’ protection like No Negative Equity Guarantee (NNEG) assures borrowers that they cannot owe more than the value of the property. The fall in the interest rates also makes the product more appealing than ever. Reverse mortgage makes more sense in economies where interest rates are low.
Interest rates usually go up along with inflation. Taking advantage of lower interest rates now will give you interest savings on your reverse mortgage. You can take a reverse mortgage now and take it as a line of credit where you can draw money as you need. Some like to call it as a “standby reverse mortgage.”
Shall you go for a reverse mortgage now? The answer largely depends on your circumstances. If you are like most baby boomers that are asset-rich but cash-poor, a reverse mortgage can help you sustain your lifestyle and live a comfortable life throughout retirement.
If you want to know more about reverse mortgages, please don’t hesitate to contact us at 1300 745 745.
The Australian Securities & Investments Commission (ASIC) recently released an infographic to explain the regulator’s review of the mortgage broking market and understand the effect of current remuneration structures on the quality of consumer outcomes.
The review reveals that mortgage brokers are paid an average of 0.54% or $2,700 for a $500K home loan.
It also claims that when taking out a loan, customers who use mortgage brokers tend to borrow more, have lower property values, have higher loan to valuation ratios, spend more of their wage on the mortgage, take out more interest only loans, and get the same rate as direct customers.
It is interesting to take note that this review is based on home loans and not reverse mortgages. And at Seniors First, we believe that you can take advantage of great benefits when you choose to work with a reverse mortgage broker.
In fact, we have specified below the top four reasons why you should work with a broker when you are looking around for a reverse mortgage.
A reverse mortgage broker like Seniors First works with the top providers of home equity loans, and our specialisation in providing this specific financial product allows us to offer you with more choices. Working with a reverse mortgage broker will allow you to explore more choices from various lenders.
A simple online search will provide you with the top providers of reverse mortgage near your area. But with a professional broker to guide you, it will be easier to choose and apply for a loan package you need without going through the usual hassle. Reverse mortgage brokers have already established a good working relationship with home equity lenders, so they know the complexities of the process so you can be sure of a favourable result.
A reverse mortgage loan is different than the usual home loan. Hence, you might need to spend some time studying its unique rules and terms before you finally decide to avail of an offer. You can save a lot of time if you work with a reverse mortgage broker who will explain to you the intricacies of the available products. On top of that, your broker will also take charge of filing your application and will regularly update you on the status of the loan.
The ASIC review also noted that those who took home loans through brokers made 16% less additional payments. This is possible because brokers will always try to find you the lowest rates and fees so you can save more dollars.
For more information on how a reverse mortgage broker can help you with your home equity loan, you can call Seniors First on 1300 745 745 or send as an inquiry to email@example.com.
St George has announced it is dropping mortgage and equity-release products after Westpac made a high-level review of their product range and underwriting standards. The review is set to reexamine loans and lending packages under current market conditions. Consequently the St George Reverse Mortgage product has been removed from sale.
The review came at a time when the other four major banks continue to increase the required deposit for home loans and apply strict requirements for interest-only loans and other credit-related products.
In a confidential memo sent to mortgage brokers, St George said that Westpac (owner of St George bank) reviewed their suite of home loans to simplify their systems and increase productivity in operations.
Aside from withdrawal of equity release products such as their reverse mortgage product, the Senior’s Access Loan, St George is also dumping equity access low documentation loans and some fixed rate low documentation home loans.
Equity access low documentation loan is a revolving line of credit secured against the borrower’s property. A low documentation loan is perfect for those who are self-employed who cannot provide usual loan requirements such as tax returns and other financial statements.
Lenders in general face new challenges as new record levels of household debt arise versus static income. An independent analysis suggests lenders to review their underwriting standards in order to deal with changing market conditions.
Yes. There is no need to worry about this news. If you are over 60 years and you need to release home equity, a reverse mortgage loan from Seniors First is still a great option. As a leading reverse mortgage broker, we work with some of the biggest names in home finance such as IMB Bank, Bankwest, and Heartland so we can provide you with enough options to find the equity release solution you need.
You should also note that this recent move from Westpac does not only isolate reverse mortgage products for cancellation. The bank is also reassessing other lending packages such as insurance and credit products, as the bank tries to adjust its lending criteria to changing market conditions.
Westpac might ditch their reverse mortgage loan packages, but the need by senior Australians for great equity products still persists and in fact growing.
Many of our reverse mortgage borrowers use their equity fund retirement living, refinance their debt, renovate their homes, buy a more practical vehicle, or take a holiday after years of hard work.
To help you learn more about reverse mortgages, you can download our FREE REVERSE MORTGAGE GUIDE.
You can also call Seniors First Finance at 1300 745 745 or post your comments below.