A reverse mortgage allows you to borrow money using the equity in your home as security. Home owners can normally defer repayment of the loan (and interest), until they die, move or sell the home.
Over recent months there has been more noise about reverse mortgages. The reasons?
Banks appear more willing to lend money
Banks appear more willing to lend money in this way. With the onset of the GFC, Australian Banks (and overseas banks conducting business in Australia) pretty much shut down their reverse mortgage businesses. More recently, bank willingness to lend money as a reverse mortgage is on the rise. A good part of this is because:
Property prices have been going up
Property prices have been going up. Residential property is attractive for banks to lend against. For Australians, increasing property value means increasing wealth. How else do you tap newfound property wealth?
The government has been jawboning about reducing the aged pension
Meanwhile: The government has been jawboning about reducing the aged pension. One way of reducing the amount of aged pension paid out to older Australians is to increase the pool of assets the government uses to assess how much pension support someone should have. An idea to include the value of people's houses in the assessment is a great way to pay out less. Many older Australians are considering their options should this happen.
Aged care is getting more expensive from July 1
Last but not least, Aged care is getting more expensive from July 1. Older Australians need to consider all options available to them in paying for care. In some scenarios, the use of a reverse mortgage drawdown to cover aged care costs could also improve aged pension income.
The use of a reverse mortgage has many implications. ASIC's MoneySmart website has some great coverage - but it is by no means complete.
A reverse mortgage is not just a story about compound interest. It is also a Centrelink and Aged Care means testing story.
Later Life Advice does not have a credit license and does not offer reverse mortgages.
However, Later Life Advice will calculate for you the implications of a reverse mortgage strategy on Centrelink and Aged Care outcomes. We can do this by taking into account any drawdowns and how they interact with Centrelink means testing.
In terms of aged care planning, a reverse mortgage may offer a useful way to satisfy cashflows, while at the same time, helping older Australians make the most of their entitlements. This won't be the case for all.
Make sure you have the whole story.
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