Changes to the age pension starting this year affected hundreds of thousands of senior Australians.
Because of the changes, you should be 65 years or older to be qualified to receive pension. Starting July 1, 2017, the required aged for retirees who can receive pension will be 65 years and 6 months. On top of that, the qualifying age will also increase by 6 months every two years. Hence, by July 2023, you must be 67 years old so you can be eligible to receive age pension.
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While these changes in the age pension can help the government to support more retirees in the future, they also left many retirees and soon-to-be retirees to go back to drawing board and think how they can support themselves during retirement. In this case, alternative solutions can be helpful such as reverse mortgages.
With the changes in the age pension test, experts believe that the interest in alternative financial schemes such as reverse mortgages will go up in the coming years.
But what is a reverse mortgage?
Basically, a reverse mortgage will use your home equity to secure a loan from a bank. If you do own your home, and you need fund for your retirement needs, you can use reverse mortgage product to unlock the property’s value. And no, you will not lose your home ownership and you can still live in your own home and spend your retirement with your loved ones.
Over the years, reverse mortgage gained its footing and in fact, a Productivity Commission report about housing issues for Australians has underscored the importance of tapping the home equity as additional income. Meanwhile, the government also encourages retirees to try reverse mortgage as it will also lower dependence on the public purse.
A report released by Deloitte in 2015 identified five major reverse mortgage lenders including Bankwest, Commonwealth Bank of Australia, P&N Bank, Macquarie Bank, and Bank of Melbourne. But with the changes in the age pension, as well as other factors such as volatility in the markets and lower interest rates, other providers are expected to launch reverse mortgage products this year.
Currently, there are about 400,000 reverse mortgages in Australia, which is worth around $3.6 billion or $90,000 per mortgage on an average.
Just because you are worried that your age pension will not be enough or you are sitting in a fortune locked in your home equity doesn’t instantly qualify you for a reverse mortgage loan.
You are eligible for a reverse mortgage loan if you have already completed paying your mortgages before hitting retirement, you don’t have any plans to move out, and you have a great need for more money for your retirement such as aged care, additional income, or necessary home renovation.
You can receive the loan proceeds as a lump sum if you have to fund large purchases to help you live a more comfortable retirement. Meanwhile, you can also receive the proceeds in form of a regular payment if you are looking into a supplemental income on top of your age pension. Lastly, a line of credit or a cash reserve can be ideal if you need an emergency stash of money during emergencies.
Take note that getting a reverse mortgage loan can significantly affect your retirement as well as the inheritance of your loved ones. Hence, you should carefully read the fine print, consult a financial advisor, and talk to your family about it.
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.