Reverse Mortgage Tips

15
Feb

Can You Lose Your Home with a Reverse Mortgage?

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.

How Reverse Mortgage Works

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:

  • The borrower sells the property of their own accord, OR
  • The borrower moves into aged care (not required with some lenders), OR
  • The last surviving borrower dies

Will the Bank Take Over Your Home?

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.

Consult a Reverse Mortgage Specialist Today

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.

Regards,

Darren

22
Jan

Five Reverse Mortgage Myths Debunked

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.

Myth No. 1 – The Bank Will Own Your Home

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.

Myth No. 2 – Reverse Mortgage Is a Scam

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.

Myth No. 3 – Reverse Mortgage Is a Last Resort Option

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:

  • a lump sum
  • a regular income stream
  • cash reserve
  • or a combination of all

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.

Myth No. 4 – Getting a Reverse Mortgage Will Leave No Inheritance for Kids

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:

  • The term of the loan/how long you live
  • Interest rate movements
  • Growth rates in the value of your property

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.\

Myth No. 5 – Reverse Mortgage Loans Carry Expensive Interest and Fees

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.

Consult a Professional Reverse Mortgage Specialist Today

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.

Regards,

Darren

 

19
Sep

You don’t need to keep working until 70!

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?

Is there an alternative?

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.

20
Jun

Reminder: Age Pension will Change on July 1

When the Commonwealth government introduced the age pension in 1909, the average male life expectancy was 55. Not many Australians reached the age eligibility of 65 for the entitlement.

With significant strides in healthcare, men and women today are expected to live well into their 80s, which has cost the government around $ 41 billion in 2016.

Effect of Living Longer on our Age Pension

As a response, the Australian government will change the pension starting a few days from now. On July 1, the qualifying age for pension will begin to increase progressively by six months every two years until the qualifying age hits 67 in 2023.

[Related Post: Age Pension qualification age changes next year]

As people live longer and healthier lives, the government believes that people can work longer and increase superannuation balances to have a comfortable retirement.

The following pointers will help you identify your age pension:

  • If you were born between 1 July 1952 and 31 December 1953, you qualify for age pension at age 65 years and six months.
  • If you were born between 1 January 1954 and 30 June 1955, you qualify for age pension at age 66 years old.
  • If you were born between 1 July 1955 and 31 December 1956, you qualify for age pension 66 years and six months.
  • If you were born from 1 January 1957 onwards, you will receive age pension by age 67 years.

Take note that if this change affects you and you don’t have a job or you have a short term medical condition, you can claim Newstart Allowance from the government. On the other hand, you are eligible for Disability Support Pension if you have a long-term medical condition.

Alternative Ways to Live a Comfortable Retirement

It might be impossible to live a comfortable retirement if you depend on pension alone. According to the Association of Superannuation Funds of Australia’s Retirement Standard, to have a ‘comfortable’ retirement, couples need $ 640,000 in retirement savings, while single people will need around $ 545,000. And with the rising cost of living in Australia and the cost involved in aged care, living beyond 67 can be a challenge.

Of course there is the superannuation, which can help you supplement your retirement income and have some money for investment. However, a report from ASFA reveals that fewer than one in 10 Australians is taking their superannuation seriously. Very few Australians are paying extra money into their superannuation, which may not be enough to fund a comfortable retirement.

There are still alternative ways to make sure that your retirement will not be a struggle. One solution is taking out a reverse mortgage, which is also known as home equity loan.

[Related Post: Changes in Pension to Boost Interest in Reverse Mortgages ]

Reverse mortgages will allow you to unlock the equity in your home without the need to worry about regular repayments. You can receive the proceeds in either a lump sum, a monthly income, a line of credit, or a combination. 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.

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.

 

Regards,

Darren

30
May

Why Reverse Mortgage Is Not for Everyone?

Reverse Mortgages have been available in Australia since the 1990s, but it is only in the recent years that these are becoming popular as a viable financial product for homeowners. Even though reverse mortgages, also known as home equity loan, has drew some flak from the media because of inherent drawbacks, public demand has been increasing because it can really help seniors who are assets rich but cash poor.

 

But despite of its viability, a home equity loan is not always recommended for everyone. In fact there are certain circumstances where a reverse mortgage can be detrimental to one’s finances. This blogpost will help you explore the proper use of a home equity loan and know whether it is a good idea to get one.

What is a Reverse Mortgage?

Reverse mortgages will allow you to unlock the equity in your home without the need to worry about regular repayments. You can receive the proceeds in either a lump sum, a monthly income, a line of credit, or a combination. 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 ]

When Is It A Good Idea to take a Home Equity Loan?

Those who are qualified for a reverse mortgage can take advantage of the following:

  • Access to cash for your needs
  • Tax-free funds with no limits on where you spend the money
  • Flexible repayment scheme
  • No income qualifications

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.

Reverse Mortgage Risks

The following are the risks usually associated with reverse mortgages:

  • Interest rates are higher compared to the traditional home loans
  • The total debt may quickly rise when you choose a no-regular repayment scheme as the interest may compound over time (You can use our reverse mortgage calculator to know how much money you will owe over a certain period )
  • Your heirs will receive less proceeds from the value of your property
  • Taking a reverse mortgage may affect your eligibility for pension

Most reverse mortgages also require homeowners to maintain the property in good condition for the duration of the loan. This can be challenging for retirees who have health problems, and paying for maintaining the property can be luxury for some. Therefore, you should always consider this factor and clarify this requirement before making any decision.

If you like to pass your home to your heirs, you should also carefully consider the fine print of reverse mortgages. Thanks to the ‘negative equity protection’ rule, you cannot end up owing the lender more than the value of our home. However, the property may still be repossessed if the balances exceed the value of the home. Your heirs may need to pay the balance before they can re-acquire the property.

Reverse Mortgages Can Help the Right Individual

A reverse mortgage can provide significant benefits for the right person, but you should always consider all the risks and clarify the fine print before taking this type of loan. This is the reason why we highly recommend working with a financial advisor who specialises in home equity loans so you can gain a comprehensive perspective of how reverse mortgages can affect your finances, especially during retirement.

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.

Regards,

Darren

18
Nov

Reverse Mortgages in Australia, Seniors First Video

What exactly is a Reverse Mortgage, and how does a Reverse Mortgage work?

These are two of the big questions most seniors have when beginning to research options for releasing home equity in retirement. This great animated explainer video, sponsored by one of our favourite lenders, is a quick way to get a good understanding of Reverse Mortgages in Australia.

Click here to find out which REVERSE MORTGAGE LENDERS are best for you. 

Enjoy!

15
Nov

Reverse Mortgage Marketing: The U.S Experience

As many readers may be aware, Reverse Mortgage loans are much more prevalent and established in United States than in Australia. So it can be a useful experience to look to the American market for comparisons and possible future trends that may emerge locally. To that end it’s interesting to see that the veteran actor Tom Selleck (Magnum, P.I. and Blue Blood) recently appeared in a TV commercial promoting reverse mortgages for an American mortgage lender.

Beyond the 71-year-old actor’s credible appeal, his pitch can be effective in convincing the market to use the equity locked in their homes so they can generate cash needed for retirement.

Reverse Mortgage: Too Good to be True?

“It’s not another way for the bank to get your house, and it’s also not too good to be true,” says Selleck in the TV commercial. Many American seniors may agree, but it is always best to apply a critical eye to any celebrity endorsement and instead explore the facts about the product being advertised – in this case reverse mortgages.

Although the U.S product differs in some key respects, through an Australian reverse mortgage you can access a credit line or a lump sum using your home as a security. However, you remain full registered owners of the property (the bank does not take control of your property) and you continue to live in your own home as long as you want. Some people think that this is “too good to be true”, because once they understand how reverse mortgages actually work many Australian seniors do indeed take the view that it’s a lot better than selling your home when you need cash.

The amount that you can borrow will depend on the value of your home, and your age. You can choose to access the fund in lump sum, in regular payments or credit line. And like any other financial products and services, there is fine print to review and below are top critical points you should understand:

  • You still need to pay for property taxes, maintenance cost, and insurance.
  • You may choose not to pay for the loan but the interest will be added to your balance each month, so the interest will compound over time.
  • The loan should be settled first before you can move out or sell the property.
  • The loan should be settled once both you and your spouse have passed away.

FACT: Reverse Mortgage is Not for Everyone

Just because you are already a senior and you own your home doesn’t automatically qualify you to get reverse mortgage.

You are an ideal candidate for a reverse mortgage loan if you have already paid off your mortgages before retirement (or there is a modest amount left owing which can be refinanced by the new reverse mortgage loan), you like where you live (no plans to move out), and you have a genuine need for more money to fund retirement.

You can choose to receive the loan proceeds as a lump sum if you need to finance large purchases to help you with your retirement, while a monthly payment is ideal if you need supplemental cash on top of your pension or superannuation. Meanwhile, if you just need to have a standby fund for emergency expenses, a line of credit (cash reserve) can be ideal.

Remember, reverse mortgage is a big financial decision, so you should do your due diligence first. Tom Selleck might have caught your attention, but be sure to understand this financial offer well. 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.

Regards, Darren

Photo credits: Alan Light, CC BY 2.0, https://commons.wikimedia.org/w/index.php?curid=1470255

 

24
Aug

End financial worries in retirement with a reverse mortgage?

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.

How does reverse mortgage work?

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:

  • Make sure you can live with less equity in your home over the long-term, and possibly less wealth for your children when you pass away or the property is eventually sold.
  • There’s a price to pay—an application fee and interest rates that are usually one to two percentage points higher than regular home loans.
  • Interest adds up over time and the equity in your home decreases as the balance of the loan increases.
  • Some lenders require that the loan has to be repaid once you move out of the house, e.g. entering residential aged care. At this point, you have to think who else is living in the house before you can consider an eventual sale.
  • You must be at least 60 years old to access a reverse mortgage. Some reverse mortgage lenders require that you are 70. Your loan amount will depend on the value of your property and your age. The older you are, the more money you can borrow.

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:

  • Additional source of income – Losing a job has a large impact on your cash flow. If you can’t rely on savings alone, reverse mortgage can come to the rescue.
  • Paying for debts – Lessen your worries by paying your existing loans with the money you get from reverse mortgage.
  • Fund your aged care – Entering a residential aged care can be costly. You can use reverse mortgage to fund your RAD (Refundable Accommodation Deposit).
  • For home improvements – You can effectively use the money for the renovation or improvements you have been planning for your home.
  • For lifestyle purposes – Most reverse mortgage loans by young and active retirees are used for lifestyle purposes like buying a new car or traveling.

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.

Regards, Darren

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). 

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