How are you going to fund your retirement?
Have you ever wondered how you are going to fund your retirement? Or maybe it is not you that you are worried about; maybe it’s your parents. I had the privilege recently of meeting up with a leading expert in retirement funding, specifically focusing on Reverse Mortgages.
Before we go any further, here is a definition of what a reverse mortgage is from ASIC’s Money Smart website:
“A reverse mortgage is a type of loan that allows you to borrow money using the equity in your home as security. The loan can be taken as a lump sum, a regular income stream, a line of credit or a combination of these options.
Interest is charged like any other loan, except you don’t have to make repayments while you live in your home – the interest compounds over time and is added to your loan balance. You remain the owner of your house and can stay in it for as long as you want.
You must repay the loan in full (including interest and fees) when you sell or move out of your home or, in most cases, if you move into aged care, or die.
While no income is required to qualify, credit providers are required by law to lend you money responsibly, so not everyone will be able to obtain this type of loan.”
Reverse mortgages are not for everyone – they are for the asset rich and income poor. A typical reason that people look to reverse mortgages is to stay in their own home for longer as they age, rather than going into a care home. A reverse mortgage may make this possible by funding expenses such as in-home care, medical expenses, altering the home to allow for reduced mobility, and making it more comfortable for a person’s changing needs.
But as I was educated the other day by the aforementioned expert in the field, there are other uses for reverse mortgages too, such as topping up your superannuation, refinancing from your standard mortgage to relieve you of the need to make repayments, upgrading your car or even gifting some of your equity to your children or grandchildren for a deposit on a home.
There are a lot of restrictions to ensure that the money is being used wisely, which include restrictions on loan to value ratio, age, and percentage of the loan for gifting etc. The lenders have a requirement by the regulators to ensure that they are lending responsibly which means there are more barriers to access than the standard mortgage, but there are some great opportunities with this type of loan to reduce stress on the ageing population.
Anyone that is looking to take out a reverse mortgage should seek independent financial advice to ensure this strategy is the right fit for their individual circumstances.
If you would like to know more about how a reverse mortgage loan can assist you or a loved one, why not reach out for a chat.