Recently Seniors First Managing Director, Darren Moffatt, conducted a media interview on the current state of the local reverse mortgage market. This was in response to a recent report by Deloitte which now has the value of the reverse mortgages in Australia at $3.7 billion.
To find out what’s happening with reverse mortgage lenders, and how this is creating positive opportunities for seniors who want to release equity from their property to fund retirement, watch the video above.
Are you worried about your retirement? Perhaps you are concerned your savings will not be enough to cover your lifestyle when you retire. Is a reverse mortgage the solution for you?
I was recently quoted in a very extensive article by the Financial Review on reverse mortgages, which I recommend you read in full. It’s fair to say that although there was some bad press about reverse mortgage a decade ago, tighter rules and more product options have made reverse mortgage finance very safe & increasingly popular among Australian retirees. Today, the stigma that was once attached to reverse mortgages has all but disappeared and it is considered as a legitimate option for funding one’s retirement.
Around seven million people are expected to begin living off through their savings in the next 40 years. Most of these savings are in the form of superannuation. There is nothing wrong with that, but the challenge comes when we start to talk about how can we make your super last, especially during times of volatile investment markets and low yield. If you are retired or coming up to retirement age, it is important that you are aware of the options available to you, and the pros and cons of each.
Unlocking the equity in your home
The increasing need for viable ways to fund retirement has prompted financial institutions to offer equity release products such as reverse mortgages and home reversion products. Because of recent data statistics that show increase in longevity and number of retirees in Australia, property and investments have been receiving lot of interest as a way to fill the gap. Though selling the home is the most popular way to release equity in your home, there are products like reverse mortgage and home reversion that are worth considering.
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. 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 die.
What are the risks?
The question whether a reverse mortgage is safe is one of the most common question we receive from clients. With increased scrutiny from government, since 2011 regulations that protect consumers are now tighter for reverse mortgages. There are also bank-imposed limits on how much you can borrow against the home value. The government also imposed a ‘non-recourse loan contract’, which means the lender cannot touch your other assets in the event of default. All reverse mortgage lenders are required by law to provide a ‘no negative equity guarantee’, which means you can never be liable for a debt more than the value of your home. That means that even if the interest accumulates as you live longer, the lender cannot charge you more than your house is worth.
How about home reversion product?
A home reversion product allows you to sell a portion of your home at a discount, in exchange for a cash payment & continued residency in the house. By doing this, you can continue to live in your home and be a co-owner for the rest of your life. You will receive a lump sum and although there is no accumulating ‘debt’ to worry about, although you will generally receive a lesser percentage of the future sale value, the longer you live. It is also does not usually offer any flexibility in how you access the funds, and large lump sums may adversely affect aged pension entitlements. Nevertheless, a home reversion product can be a good way to extinguish significant remaining home loan debt upon retirement, that you could only otherwise clear through a property sale.
Should you consider a reverse mortgage?
Just like other loans, there are some things you need to consider before you decide to take out a reverse mortgage. Below are some points you need to know and decide on before applying for a reverse mortgage:
Use our reverse mortgage calculator to see understand the long term costs and interest calculations of reverse mortgages.
Where can I use my reverse mortgage?
According to the industry body SEQUAL the average loan amount of a reverse mortgage is around $85,000. If you are old, unemployed, and have little source of income, there are many things you can use it for. Below are the common uses of a reverse mortgage:
Where will I go to get a reverse mortgage?
There are a small but growing number of existing reverse mortgage product providers in Australia. Seniors First is a long-time reverse mortgage broker and although we have seen the competition becoming better compared to recent years, there is still more to expect in the equity release market.
Each year, more than 200,000 people turn 65 with an average superannuation of $85,000. A product like reverse mortgage is an attractive retirement funding solution for many retirees.
Will it affect my age pension?
Reverse mortgage is flexible. Payments can either be a regular income stream, a lump sum, a line of credit, or combination of these options. In most cases, although there is no direct impact on the age pension, you still need to be careful. This is for in such cases as taking lump sums and using them for non-exempt assets like taking a holiday or general expenses.
High amounts of payments count as an asset immediately, while any lump sum amounting to $40,000 is not counted for the first 90 days. If you are a single person and a home owner, you can have as much as $200,000 in assessable assets before assets test affects your pension.
In case you use the money for investment, it may be subject to deeming right away. This may affect the pension through income test. But once you use your money for exempt asset, this may not have any impact on your aged pension.
Do I need a reverse mortgage broker?
A reverse mortgage broker helps you access to more lender choice and compare different lenders. A broker will help you find the right loan product, at a good rate. He or she can also give you tips to save money by showing you ways to structure and manage your reverse mortgage fund to minimise interest costs and effectively preserve your home equity. A broker will do all the hard work for you and manage your application from start to finish so you can have a hassle free reverse mortgage loan.
Seniors First’s brokers have full accreditation with panel lenders and successfully completed SEQUAL industry course, Equity Release Plans. They have extensive life experience, empathy, and understanding of your needs. For more information, call us now at 1300 745 745.
NOTE: this post is for informational purposes only and does not constitute legal or financial advice. Please also note that the figures contained are correct at time of publication, but may not be accurate in future. For possible reverse mortgage impacts on aged pension you should check with the Centrelink Financial Information Services (FIS).
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:
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?
“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:
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.
PS: SeniorsFirst only use SEQUAL accredited lenders for reverse mortgage.
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.
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:
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.
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!
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.