I am 70 and own my home $500,000 and would like to take advantage of the equity. Any advice would be welcome.
Reverse Mortgage - Any Advice Welcome
Comments
the bank needs to see you as servicable (sic) before they lend to you despite owning your own home.
Wrong.
They are for people who are asset rich and cash poor.
That is the whole point of a reverse mortgage.Some general tips to get started: NB: Not advice/usual disclaimers apply :)
a) SEQUAL has some useful information on the process and pitfalls to watch out for.
b) You'll find at age 70 you'll typically be limited in terms of LVR to ~20-25%. It is also probably worth getting independent credit, financial and taxation advice to understand the pros and cons of this type of product from various perspectives.
c) The major lenders in the space are Macquarie, CBA, Bankwest and St George. There are also a handful of non-banks that lend in this space. Rates are typically around the ~6%-6.5%p.a. mark.Hope this helps.
Thank you for this interesting imformation
Hi Popplepoint,
In regard to your information request - they are regulated under the National Consumer Credit Protection Act. They provide security of occupancy, "no negative equity guarantee", a forecast of future net equity based upon projected needs, and a mandatory legal advice for all borrowers or Enduring Powers of Attorney. Borrower are required to maintain payments on both rates and insurances.
As stated there are a number of lenders. The best product structure is made up of a lump sum, periodical payment, line of credit, or a combination.
It is always best to access only what you need, and have a reserve for future needs. The security used can be the family home or an investment/beach house.There are no repayment/servicing needs as the loan is only required to be repaid when the house is sold, within 12 months of the last remaining borrower passing away, or in some cases, when the last borrower permanently moves out. The loan could be transferred into an aged care loan if the borrower moves into residential care.
There are national advisers who can provide credit advice in regard to your needs.
There are no tax implications unless your funds produce an income. Generally there are no Centrelink implications if your funds are used for cost of living needs or repairs and maintenance to the family home. The value of a purchased car or other assessable asset will be included in the age pension asset assessment.
Hope this helps.
<Mod: Comment signature removed. Follow the commenting guidelines.>
Thank you for so much interesting imformation
There has been plenty of adverse stories about reverse mortgages over the years, but a lot have been driven by false information.
Re Aggregate
"You will not be able to leave a property for your children as inheritance". incorrect - the appropriate use of Equity Release will still leave an inheritance. Try out some calculations on the ASIC Moneysmart calculator
"The bank could repossess your property if the price of your home drops below the outstanding debt". incorrect - All reverse mortgages have a lifetime tenancy and a "no negative equity guarantee' which means the loan to be repaid can be no greater than the sale value of the property.Giving money to your grandsons for their education is a noble thought.
Please note you are able to gift $10,000 in any one year, or $30,000 over 5 years without the monies being deemed. If you exceed that threshold the first $49,200 shall be deemed @1.75% and thereafter @3.25%. Effectively you can earn about $168 per fortnight before any adverse effect on your pension.
Regards,
Reverse Mortgage Adviser
Reverse mortgage is not for everyone. There are a few things to keep in mind of:
1. The lender now has a claim on your property. You will not be able to leave a property for your children as inheritance.
2. You may not need to make regular instalment payments, but be aware of compound interest. Suppose you obtain $100k with interest rate at 6.5% p.a, with no regular repayments, the loan becomes $257k in 15 years; $661k in 30 years.
3. A reverse mortgage makes more sense if property prices increase significantly over the course of the loan. However, prices may fall. The bank could repossess your property if the price of your home drops below the outstanding debt.There are a few other options if you decide to sell your house. For example, sell and downsize to access $100k, or sell and rent. You'll need to speak with a financial adviser as there may be tax/centrelink implications.
Also check out ASIC: https://www.moneysmart.gov.au/superannuation-and-retirement/…
Appreciate your input
OP, might be easier to describe what you are looking to achieve with the equity. Maybe we can then all help you with advice for the right strategy?
Appreciate your input
I get the concept of a reverse mortgage, but I don't get for the life of me why anyone would want to ever get involved with a bank again once you've slogged the hard yards to pay of your home.
Frankly, I don't trust banks as far as I could throw them. They are a necessary evil, but why keep playing with fire if you no longer need to do so?
My main concern with a reverse mortgage is that you are relying on house prices to constantly rise - eternally, actually. When you consider the average life span of a person in the 21st century - I have a horrible premonition that there are going to be greedy, unethical banks who are going to come along and demand repayment or repossess your property before you are anywhere near pushing up daisies.
As others have said, perhaps the OP could share further details surrounding his/her personal situation. There are lots of ways to generate additional income or make your dollar / pension stretch further…..
The primary driver of going into a Reverse Mortgage is not to gamble that your house will grow faster than the interest rates you are paying.
This is for the group of normally older Australians who are asset rich but cash poor and are willing to start drawing on the equity early.
This financial instrument is covered by regulations and there is not much room for 'shiftiness'. That being said the banks have set up the deal so they have very little chance of losing.
The max they will offer you is 40% of your home, with a hold on your title they are only exposed to disaster (insurance) and drop in market. A 60% drop is unlikely.
This instrument is not for everyone but it may be appropriate for some.
I agree banks are shifty and not to be trusted. I would like to be able to contribute to the education of my 6 grandsons.
Law of average is that the equity will become available to late for this. I realise it will be a win for the banks but the investment in their education will make it worthwhileWhat are your income circumstances? If you are on a pension or not earning any income you will be hard pressed to keep up with the repayments for a reverse mortgage so eventually the house will belong to the bank or the mortgage will have to be paid by the people you leave it to in your will. If you are ok with that than go for it. Otherwise you should look at some of the other suggestions here.
Have you ever considered renting a much cheaper place and rent your house out and pocketing the difference? It appears like you really want to stay in your home so maybe the downsizing/renting option is not for you, perhaps you should just give us the full story.
Another way you could access equity is via private treaty. Perhaps look for some investor that might give you 25% or more of the value of your house now, with a put option for them to buy it in 10-15 years? People will write this off as too hard to organize, but if your house is in a popular location there are investors out there that would probably do this given the capital gains they could potentially make off essentially a very cheap outlay.
The bigger win for their lives, might be to actually end up with cold hard cash from the sale of your house when you depart this world, so that they can pursue their own dreams, or perhaps when they are buying their own house etc., in years to come.
Have you considered perhaps, living overseas part time. Ie: Vietnam, Thailand or other countries within our region that give us a high stand of living with our Australian income & perhaps renting your house out for that period of time. (This might provide you with additional income that you could set aside each year for their education.)
Alternatively, have you considered using some of the equity in your home to perhaps purchase an investment property in regional Australia where the rent could possibly pay for the mortgage, outgoings etc., until such time as your grandchildren require the funds.
Another possibility, perhaps consider just creating an education fund for the six of them. Each time you have $5,000 or so saved - perhaps consider creating a decent share portfolio for them, ie a decent bank stock, a gold stock, oil, etc.,
I'm not really seeing the logic of handing over a small sum of money to your grand children now, only to have the bulk of the asset eaten up by interest from the bank over the longer term. The Bank has already done you over once on the amount of interest they charged. Do they really deserve to get a second bite of the cherry?
Downgrade the property and use rest of money to contribute towards your Grandsons/Granddaughter or Sons/Daughter.
Smart thing to do is sell current property and move in with your kids/grandkids and use excess money for good times…I would personally never touch a reverse mortgage.
This is something Asians do normally. But quite foreign to Westerners.
well if OP is going to contribute to the education of his 6 grandsons, it's the least his kids can do for him.
Quite foreign to men you mean.
the bank needs to see you as servicable before they lend to you despite owning your own home.