Reverse Mortgage News | Seniors First Blog

26
May

Reverse mortgages: a gift for Australia’s ageing population?

Reverse mortgages have been every where in the media recently. Suddenly it seems that releasing home equity is THE solution for seniors facing lower pensions and possibly higher superannuation taxes, from a government under fiscal pressure. There was a great article published recently about this phenomenon. Even the Financial System Inquiry strongly suggests reverse mortgages as a way to support retirees’ cost of living and increase the activity of Australia’s overall financial system.

If you haven’t heard, reverse mortgage is a kind of home loan which allows you to draw money from your home equity. Unlike a regular home loan, reverse mortgage allows you to defer payment until you die, move out, or sell your home. For many Australians whose wealth is tied up to their home, reverse mortgage is a great way to tap home equity for extra funds that can be used for travel, aged care accommodations, or investment.

Since the outbreak of the global financial crisis, there has been an increase in lending and mortgage transactions by Australian banks. Today, these banks hold around $1.3 trillion in mortgages and continue to increase by the minute.

How can reverse mortgage help you?

Through reverse mortgage, you can access a lump sum or an annuity using your home as a collateral. One of the main benefits of reverse mortgage is that it allows you to still live in your house as long as you live or as long as you still hold ownership of the house. As opposed to selling your home when you need fund, reverse mortgage protects you from possible heartache of letting go of your home. Reverse mortgage can be paid through eventual sale of your house after death.

Effectively, you can use reverse mortgage for general living expenses to supplement your aged pension or super (or to fund your aged care accommodation costs).

What’s the difference between reverse mortgage and standard mortgage?

A reverse mortgage has the following qualities:

  • Increases overtime – the loan balance increases as interest is added to the outstanding balance, unlike standard mortgage that decreases as you make repayments.
  • It is protected by ‘no negative equity guarantee’ – despite the compounding interest your debt payable under reverse mortgage cannot exceed the value of your home.
  • Higher interest rates – reverse mortgages generally have slightly higher interest rates because there is lesser competition in this sector, unlike standard mortgages. Also the lender may not receive any capital back for decades, so a slight premium on the rate applies. 
  • Lenders only provide up to 45% of property value, depending on your age – this is because of longevity risk and to allow a buffer for the possible long-term effect of compounding interest.

Why choose reverse mortgage?

In Australia, the government has legislated a no-negative-equity guarantee as a minimum requirement for all reverse mortgage providers. The government does that to protect borrowers and generally support the market’s efficiency. We are lucky because here in Australia because the market is heavily regulated with generally very good outcomes for senior borrowers.

With a responsible, regulated reverse mortgage industry Australian seniors at least have a viable solution to fund the increased longevity of an ageing population. This is important for pensioners and superannuants who are facing increasing pressures from government to fend for themselves, financially.

What do you think? Are reverse mortgages a gift for Australia’s ageing population?

Regards, Darren

17
Mar

SEQUAL sees a better retirement with Reverse Mortgage

“Today we are announcing a new mission statement that is really all about the consumer,” SEQUAL chairman Mr John Thomas said in a media release following the launch of SEQUAL’s new website. SEQUAL’s new mission statement promises a dignified and secure retirement for all Australian home owners.

The Senior Australian Equity Release Association (SEQUAL) has recently made major changes to encourage more Australians to consider equity release as their primary option to supplement their retirement income. According to Mr Thomas, one of SEQUAL’s goals is to “advocate a dignified and secure retirement for all Australian home owners.” He added that having equity release as their option should mean that they no longer need to experience financial hardship in their retirement or lose their home in the process.

The recent changes have sparked interest in many Australians. Now, more people are looking into equity release and gathering more information about their options. Since the launch of the website a month ago, SEQUAL said they already experienced substantial growth in terms of people visiting the site and running to SEQUAL for more information.

To serve the needs of Australian seniors better, SEQUAL has come up with a new mission statement:

  • Advocate a dignified and secure retirement for all Australian home owners
  • Promote an understanding of senior’s equity release to consumers and other stakeholders
  • Ensure members adhere to SEQUAl’s “Consumer Protection Principles” to foster consumer confidence

Providers who wear the SEQUAL badge offer consumers guarantee of security and certainty with their products. All equity release customers of SEQUAL members are guaranteed to stay at their house for as long as they live, without any threat of losing their home any sooner. Regardless of what happens to interest rate or market prices, your house is secured with any SEQUAL member. This is because of the No Negative Equity Guarantee, which is a prerequisite to SEQUAL membership. This means you cannot owe more than what your house is worth.

In the days to come, SEQUAL is expected to further increase awareness and educate people about equity release. They are standing firm in their goal to give every Australian home owner a dignified and secure retirement.

For more information about SEQUAL and its members, please visit www.sequal.com.au.

Regards, Darren

PS: SeniorsFirst only use SEQUAL accredited lenders for reverse mortgage.

30
Jan

Government Blow To Seniors’ Finances: NICRI To Close

In what may well rank as the worst in a series of stupid recent decisions, this federal government has cut funding to the National Information Centre on Retirement Investments Inc (NICRI). Consequently NICRI will close on late Feb 2015.

I am frankly appalled at this decision. Wendy Schilg and team at NICRI have done much good work over the years for retirees in general, and also for many Seniors First customers. I think the closure of NICRI is a serious blow for seniors finances, and it seems both COTA and TARS agree. 

NICRI is an important source of ‘independent’ information for seniors  on superannuation, retirement investments, financial advice, financial planners, estate planning, equity release finance and more.

I and the team at Seniors First have regularly referred pensioners & retirees who were considering home equity release to NICRI. This service was especially useful for would-be borrowers who were nervous and wanted reassurance that reverse mortgages were safe, and indeed were regulated by government.

The foolhardy policy decision by the government to cease funding this body will almost certainly result in some retirees making poor financial decisions that could otherwise have been avoided.

Regards, Darren

11
Dec

5 Reasons Why Reverse Mortgage Helps Retirement Planning

We always have that picture in our mind—the day when we finally stop working and spend the rest of our lives in beachfront houses with the love of our life, walking in the sand and watching sunset together. But according to a director of Retirement Research Alicia Munnel, this idea is far from what is going to happen in the future. “The idea that people can retire at 62 and walk around holding hands on the beach, it’s not realistic,” she said.

 In her book “Falling Short: The Coming Retirement Crisis and What to Do About It” that will be released on Dec. 12, she mentioned that retirement in the 21st century would mean “working longer, saving more, and passing fewer assets on to heirs.” Although the research is U.S based, it applies to most western democracies, and certainly to Australia.

The inconvenient truth

More and more people will realise that as soon as they retire, they will have few savings in their bank accounts and yet, they are often too old for work and there are few options for improving income. Economic and demographic factors have affected our support system and things are changing before our eyes. The decline in birth rate means less people paying tax and increase in ageing population means more people running to government for support. There have been new set of reforms to address this issue, but as early as now, these reforms are being criticised to work only for rich individuals.

 “People are not going to have enough money when they stop working,” warns Munnel. According to her, we need to fix this while we have time because this is really important and it determines the quality of life we will have in our twilight years.

While trying to be in the workforce as long as we can gives us a good leverage, it is often difficult to find work in our 60’s and 70’s. This is unfair, but the reality that many people face. But there’s no need to lose hope as other options can be available. Though reverse mortgages have developed a mixed reputation since they were introduced a decade ago, latest research articles combined in “Journal of Financial Planning”  verified the importance of reverse mortgage and how it helps improve the retirement sustainability of individuals.

Here are five reasons why reverse mortgage fits modern-day Australian retirement planning:

 

  1. Reverse mortgage is safe. Whether it is safe or not is the ‘sixty-four million dollar question’ for many people. Well, we all know that the home is after all a family’s biggest asset and carrier of memories of a lifetime. It’s normal that people are a bit hesitant for anything that involves their home. However, having a good financial advice and a trusted reverse mortgage broker will let you enjoy these loans and have a better lifestyle whilst maintaining the security of home ownership.

 

  1. Reverse mortgage is flexible. Reverse mortgage allows you to borrow against the value of your home and payments can either be a regular income stream, a lump sum, or a line of credit. One great advantage is you can also use a combination of these options. This comes handy when you want to carefully plan how you are going to spend your reverse mortgage payments.

 

  1. Protection against negative equity. The new government legislation protects owners from ending up in debt and owing more than the value of their home. Beginning 18 September 2012, reverse mortgage contracts apply ‘negative equity protection’ so that when your contract ends, the lender cannot hold you liable if the sale price exceeds your actual accumulated debt. And when the sale proceeds exceed the amount you owed to the lender, you or your family will receive the extra funds.

 

  1. Providers are monitored by SEQUAL. Senior Australian’s Equity Release Association of Lenders or SEQUAL is an industry body that oversees responsible provision of home equity release of lenders to the public. SEQUAL maintains a strict code of conduct and requires you to have legal advice before entering any contract. Dealing with a legit provider that is accredited by SEQUAL gives you peace of mind and guarantees you of ‘no negative equity.’

 

  1. You can control how much you borrow, & how much you draw. You can decide how much or little you want to borrow (subject to bank approval & product guidelines). In most cases reverse mortgage lenders will allow you the option to establish a ‘limit’ of funds available, which you as the borrower can then control drawdown/access as you want. That is, you may have a significant pool of money available, but by limiting what you actually use now you may ensure less impact on your future financial position. 

For questions or inquiries, Seniors First reverse mortgage brokers in Australia are always here to help you. Call 1 300 745 745 today for a free initial consultation.

Regards, Darren

24
Oct

Government Reverse Mortgage Loan Only For Rich Retirees?

As you may be aware a reverse mortgage allows you to borrow money against the value of your home. In Australia, people often use the equity released via a reverse mortgage as ‘income’ to fund their retirement. Reverse mortgage continues to grow in popularity among seniors as the retirement funding shortfall for baby boomers starts to really bite in the community.

Although few Australians are aware of it, the government has a kind of ‘reverse mortgage scheme’ that has many advantages not offered by the private sector. The Centrelink and Department of Veterans Affairs have a Pension Loan Scheme wherein people who are on a part age pension can get a loan against their home or investment property. Just like any reverse mortgage, the loan is repaid once the property is sold.  The loan serves as an additional income stream that when combined with the part-pension, gives them the benefit of maximum level of pension. The interest rate is also lower than the usual variable interest rates offered by reverse mortgage providers. The government reverse mortgage has a fixed interest rate currently of 5.25%.

Recently the Australia Institute argued though that the government scheme is available only for the wealthy retirees. Why is this so? Those retirees who own their homes, but are considered poor enough to be on full age pension, cannot access this government scheme. In short, only those Australian retirees who don’t have access to full age pension (because their wealth and income makes them ineligible) are able to enjoy and benefit from the government reverse mortgage scheme. In addition, those self-funded retirees who own property and ineligible for the age pension (because of income test or asset test) can also access the scheme. However, if they are ineligible for age pension under both tests, they won’t be able to access the scheme.

Therefore it’s perhaps no surprise the Australian Institute said that the government scheme is only available for those who need it the least. This compels most aged pensioners to use private reverse mortgage providers instead. After all, unlike the government scheme that is only limited and capped to the aged pension rate,  retirees can borrow from a private sector reverse mortgage lender and take it as a lump sum – this is a major advantage. This gives borrowing power to a huge class of retirees who are on their full age pension and cannot access the government scheme. Read this for a full list of PROs & CONs to both the pension loans scheme and reverse mortgages that should be carefully considered.

The Australian Institute suggests that the government scheme should be available for every one of pension age. This should not be limited to rich people who are in the first place, ineligible for the full age pension because of their income or assets. If the scheme is made available for everyone, this will allow retirees who own property to potentially double their retirement income and live the rest of their lives to the fullest.

According to Australian Institute, this would not have a significant effect on the government’s budget if they open the scheme for everyone. What do you think? Do you think Centrelink should make the pension loans scheme available to every retiree? Tell us in the comments!

Regards, Darren

3
Oct

A Big Future For Reverse Mortgage: Seniors First Re-Launches

The day is finally here: I’m really excited to announce the official re-launch of Seniors First!

I can’t quite believe it, but it’s been eight whole years since we first started helping Australian seniors with reverse mortgage and equity release finance. Where did the time go??

It feels just like yesterday, but since 2006 we’ve helped thousands of people, won industry awards, and developed a reputation I’m really proud of.  If you’re interested, check out our history page (yes, I’ve aged!)

What’s Our ‘Re-launch’ All About?

Well it’s my view that all good organisations never stand still for long. To be successful over the long-term companies must constantly listen, adapt and develop over time so that the needs of customers always met. The world changes fast, and we must change with it to keep up. Our re-launch is a conscious way to demonstrate to you, staff and partners that we are positioning for the future of reverse mortgages. And that future is online.

To this end, we’ve refreshed the Seniors First brand identity with an updated logo.

And we’ve worked with my other business to build this amazing new website. Our objective was to create a leading online resource for reverse mortgage and senior’s home equity release in Australia. We want this site to become THE destination for retirees, pensioners, and families who are considering reverse mortgage finance so we’ve packed it full or really useful information and tools:

Why Are We Re-launching Now?

The GFC of 2008/2009 was very hard on the reverse mortgage market in Australia. Essentially the number of lenders shrank from over twenty to just a handful. This was bad for consumers and the lack of product choice resulted in many borrowers missing out, or perhaps paying more in interest and fees that they otherwise might have. A lack of competition is never healthy for any market.

However I’m pleased to report that (five years later!) new lenders and products are once again emerging. As this rate of innovation of product choice increases, senior borrowers will need a specialist finance broker more than ever before.

In addition, there are signs of ‘shifting sands’ in public policy that are worrying many pensioners and self-funded retirees. The Government is increasingly giving signals that aged pension funding, health card concessions, and tax breaks that favour seniors are under review and may be reduced, or cut. In this environment – and with the vast majority of household wealth stored in property – the ability to release equity from the home safely and easily may become crucial for many Australians.

In the near future, it’s very possible that government policy will push more of the retirement funding burden to individuals and thereby increase the demand for reverse mortgages. With our new website, extra staff, and investment in online technology, I’m pleased to say this is a challenge that Seniors First is ready to meet.

Regards, Darren