CASH POOR PENSIONERS AND REVERSE MORTGAGES

Cash Poor Pensioner Home Owners are Taking Advantage of the Reverse Mortgage

A reverse mortgage can release the equity in their Homes to allow a retiree to enjoy their retirement years.

Used intelligently they can supplement pensions, remove other debt and allow for a comfortable and more enjoyable retirement.

There are currently over 400,000 reverse mortgages in Australia.

With the changes to retirement ages increasing and pension entitlements decreasing, this is a real way to manage your finances in retirement

By 1 July 2023, you will need to be 67 years old to qualify for an age pension.

If you were born between 1 July 1952 to 31 December 1953, you qualify for age pension at age 65 years and six months.

If you were born between 1 January 1954 to 30 June 1955, you qualify for age pension at age 66 years old.

If you were born between 1 July 1955 to 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

 

What is a reverse mortgage?

A reverse mortgage is a home loan that allows the owner to receive cash payments or a lump sum based on the equity in their home. This means you are borrowing money against your home equity. You are also not required to repay this money until the home is sold, at which point the sale proceeds are used to repay the loan.

Benefits

This option can provide a much more comfortable retirement. The payments or lump sum from a reverse mortgage act as an additional income, meaning you don’t have to rely solely on your superannuation or pension.

You can live in your home as long as you like with a reverse mortgage and don’t have to make any repayments during that time.

The amount you are required to eventually pay back is also capped at the value of your home. So if you do stay in your home till you are 110 the payout of the loan cannot exceed the sale value of your home and leave your estate with a debt.

Risks

The loan must be repaid in full, either when you sell the house or if you die. Interest is also charged and is added to your loan balance to be paid when the property is sold. These interest rates tend to be a couple of percent higher  than a normal home loan, so this needs to be accounted for when calculating a loan amount. It is a requirement that we work this out for you and give you an idea of what the costs and payouts will be at various time frames, before you go ahead.

You also need to be aware that if you are a sole homeowner, any other people living in the property, they may have to vacate when the loan needs to be repaid.

It is best to get a Financial Adviser to go through any affects this may have on your Centrelink payments. Sometimes funds can come as regular payments instead of a lump sum to reduce any effect. Matching up your financial needs to your life expectancy would be a good idea.

The amount you can borrow will depend on your age. You must be of retirement age to apply. Its nice to have options.

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