26 Giffard Street
Williamstown 3016
Ph. 03 9397 7275
Fax. 03 9397 1734
Mobile. 0428 310 165
Email. reidcont@tpg.com.au
ABN: 65 111 801 079
www.reidconsultants.com.au

•  Are you or your parents over 65 and surviving on a pension?

•  Are you still working, approaching retirement age and considering your future lifestyle?

•  Do you need to access lump sum moneys that are just not currently available to you?

These are some of the reasons why the seniors' equity loans or more particularly reverse mortgage products are being increasingly used by Australian seniors. This type of product has a strong history in both the US and the UK . There experience is that there is nearly an 80% take up of this type of product. The Australian market is in its infancy but we have benefited from the UK and US experiences. Some of the flaws in their early products have been recognized and the products available to Australians have greater safeguards and consumer protection.

A reverse mortgage is simply a registered first mortgage over your property, much like a normal home loan most of us have used to purchase our home. The major difference is that you do not need to pay any principle or interest on this loan. The interest is capitalised, meaning that it adds onto the loan and consequently the amount you owe grows over time. Most lenders allow repayments if you want to make them, ie. if you receive a windfall from an inheritance or Tattslotto, you can repay some or all of the loan. The loan is repayable when the surviving householder dies, you permanently move out or you sell the home.

Lenders see this as a growing market, more people are reaching retirement age without sufficient money to afford to live a modest lifestyle, let alone a comfortable one. The property market has been in a strong growth cycle and is likely to continue to grow, albeit at a slower pace for some time, so the underlying security of their loans is strong. They lend only a small portion of the value of the home, it is based on your age (youngest of a couple) and the value of the home. For a 60 year old couple, lenders will lend 15% on average, going up to 45% for a 90 year old.

There are a number of lenders in this market, offering a variety of products with differing features, some just lend on your own residential home, some lend for holiday houses, some lend for investment properties, etc. There are a variety of ways to access the money, lump sum, cash reserve, monthly payments over 5 to 20 years, combinations of lump sum and monthly payments. Interest rates and fees vary, some lenders offer fixed rates for 1 year up to life, some offer caps, others are variable only, some offer a combination. The interest rates are higher than normal mortgages, between 0.5 to 1.5% above the standard variable rate as the risk is higher and the lender does not receive any returns until up to 30 years in the future.

There has been negative publicity and an undercurrent of fear about seniors' equity loans. Most are unfounded. ‘Money for Living' was a form of an equity loan, being a Home Reversion Scheme where you sold you property, title passed to a buyer in return for a ‘lifetime' interest and a money. Reverse mortgages do not go down this path. The four major fears about these products are:

• Title – will you ever be thrown out of your house? 
• Equity – will the debt ever be a burden on beneficiaries?
• Pension – will it reduce your entitlement?
• Inheritance – can I still leave an inheritance to my beneficiaries?

• Under a Reverse Mortgage, title remains in your name and your name alone. You will not be thrown out.
• With SEQUEL members, they all have a NO Negative Equity pledge, meaning that you will never owe more than the value of the property. Depending on the underlying movement in the property market and the prevailing interest rates, it is possible that equity in you home is maintained.
• In most cases, there are no pension effects, although it is always advisable to seek clarification from a Centrelink FIS Officer
• Depending on how much you borrow, what the underlying property market does and interest rate movements, your current equity may be maintained

The reality is that we are living longer and we do not have sufficient savings to be able to afford even a modest lifestyle. The government aged pension pays approximately $12,500 for a single and $21,000 for a couple. A recent survey found that is costs $17,826 and $24,930 for a single and couple to achieve a modest lifestyle where they own their own home and $34,560 and $46,192 for a comfortable lifestyle, again where they owned their own home. An aged pension is designed as a safety net providing a subsistence living.

Compulsory superannuation has only been around for just over 10 years, most will not have saved anywhere near enough to provide a long term income stream sufficient to supplement the aged pension to achieve a modest lifestyle.

The main purpose seniors are using the money accessed by reverse mortgage are renovations and upgrade of appliances; travel and lifestyle – taking that trip of a lifetime; refinance existing debt mortgages and/or credit cards; income supplement to the aged pension; medical operations rather than waiting for public lists. assist family now rather than having to wait to when you die far into the future; pay the day to day bills; upgrade your vehicle and for the financially savvy, use it to increase wealth by superannuation or investments.

The real question often comes down to quality of life. Are you living the lifestyle you expected to or deserve to in retirement? Imagine what a lump sum of $50,000 or a monthly payment of $250 would allow you to do. One interesting aspect from both research and the lenders is that the children are surprisingly supportive of their parents living a good lifestyle and enjoying themselves.

Give me a call to find out whether this type of product suits your needs and circumstances and what could you borrow based on your age and value of your house, obligation free and no cost appointment, call – 9397 7275

Helping People through Finance