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Reverse Mortgages - Options for Older Australians

- Wednesday, November 11, 2009

If you’re retired and own your own home a reverse mortgage could be the key to unlocking a more comfortable lifestyle.

You’ve put in the hard yards and now own your home yet you don’t have much spare cash to play with. This situation is a reality for many older Australians who did not have the opportunity to benefit from superannuation.

There is always the option of selling the family home to release a lifetime’s hard earned savings but the prospect of retiring to rented accommodation is not one that appeals to most.

A reverse mortgage offers seniors, usually over the age of 60, the ability to release some of the equity that they have built in their home to finance their lifestyle.

There is a range of ways to access the equity, which include drawing down a one-off lump sum for expenses – such as holidays or a renovation – or as a regular income stream to simply improve the day-to-day quality of life.

The amount you’ll be eligible to access will depend on your own personal circumstances but usually home owners can draw anywhere up to 40 per cent of the value of their home.

Unlike a loan no repayments are required as the lender simply takes the amount drawn from the sale price of the home once you sell the property or pass away. You will however be charged interest on the amount you borrow against your home, which will be added to the loan balance.

A word of caution

While a reverse mortgage can greatly improve cash flow and enhance the quality of life for seniors, borrowing against your home requires careful consideration and ongoing diligence to ensure you don’t end up spending away your most important asset.

The rate of interest on a reverse mortgage will usually be higher than a regular home loan and it compounds over the term of the loan, meaning your level of debt can rise quite rapidly. For this reason it is important to draw on the loan carefully and monitor how quickly your debt is rising.

In the very worst case scenario, you may end up in what is called negative equity, where the value of your debt is greater than the value of your home. Many lenders offer guarantees that you’ll never owe more than the value of your home, but not all – so it’s an important point to remember.

Like to know more about reverse mortgages.

This article does not necessarily reflect the opinion of the author/s,  Carruthers Financial Services Pty Ltd or any of its employees or subsidiaries. It is intended to provide general news cand information only. While every care has been taken to ensure the accuracy of the information it contains, neither the author/s, Carruthers Financial Services Pty Ltd,'Carruthers Financial Services Pty Ltd's employees, or its subsidiaries, can be held liable for any inaccuracies, errors or omission. Copyright is reserved throughout. No part of this article can be reproduced or reprinted without the express permission of Carruthers Financial Services Pty Ltd expect for the use for which it was purchased for. All information is current as per the date of delivery and Carruthers Financial Services Pty Ltd will take no responsibility for any factors that may change thereafter. The purchaser of this article and all readers thereafter are advised to contact their financial adviser, broker or accountant before making any investment decisions and should not rely on this article as a substitute for professional advice.

David Carruthers is a credit representative (Credit Representative Number [400226]) of BLSSA Pty Ltd (Australian Credit Licence No. 391237).