Sumar Ambreen

The growth in use of reverse mortgages by asset rich, cash poor seniors is increasing rapidly.

As is the awareness by their children that this new debt facility will decrease their inheritance. Seniors receiving their lump sum will mean that the house that now has a reverse mortgage against it is having a capitalised charge against its future value. The children’s inheritance (i.e. the family home) is losing equity by the cost of the interest being charged by the lender.

ASIC figures suggest that a $1,500,000 house with a $300,000 reverse mortgage loan will increase to more than double over 15 years.

What can the children do to make an ‘investment’ in protecting the tax-free inheritance that is available via their parent’s home?

Case study: Ian and Rosie take out a reverse mortgage and the kids pay the interest to protect the value of the home

Ian and Rosie have an unencumbered property in Sydney valued at $1.5m. Both are 70 years of age and on the Age Pension.

They needed $300,000 to complete renovations, have a regular pension top-up and they also wanted to take their grandchildren on a holiday.

Ian and Rosie discussed with their two children that they are considering taking a reverse mortgage loan. At age 70 they would be eligible for 25% of the value of the home as a loan with a 6.29% interest rate. (Properties below $2mil incur $495.00 fees and charges, this includes valuation and settlement fees.)

Normally, there are no repayments required with reverse mortgage loans.

However, their children decided that they would contribute the interest only component or any contribution equally between them, so the loan amount does not increase and the impact on their inheritance is minimum. Going by the property trend the growth is approximately 3% per year. See chart below.

ASIC Reverse Mortgage Moneysmart Calculator

This section estimates remaining equity with different assumptions about future house value and interest rates.

This is an estimate, not a guarantee. You may end up with more or less equity in your home.

• Carefully discuss and consider with a financial planner, lawyer and Centrelink of any financial impact on your pension or superannuation.
• Seek independent financial advice
• Make sure all costs associated with the loan are assessed
• Ensure there is no obligation to purchase any other product or service to receive an equity release product (Reverse Mortgage)
• Seek advice to update your Will

What is a reverse mortgage?

It will allow you to borrow against the equity in your home without having to sell, by releasing funds for comfortable years ahead in retirement.

It is a loan available to homeowners, 60 years or older, which allows them to convert part of the equity in their home into cash.

It can be taken against the family home as well as investment properties.

Safeguard you and your property by choosing the right reverse mortgage

• Ownership of your home stays with you
• Protect the amount of equity left in your home at the end of the reverse mortgage (most people have chosen up to 50% of home equity protection which becomes available to the Estate)
• Repayments are not required, however, you can make payments big or small at any time and be able to redraw
• Ensure you receive independent legal advice
• Ensure you receive independent financial advice
• Involve the family and other beneficiaries in the decision

By Ambreen Sumar, Lending Specialist

The post Protecting your inheritance from the lender appeared first on AdviserVoice.

Sumar Ambreen

A Refundable Accommodation Deposit (RAD) payable on entry in aged care is often a large amount of money to find in a hurry and many people think selling the family home is the only option open to them.

Selling off the much-loved home can be a distressing outcome for most people. However, in many cases the house can be retained by using a reverse mortgage loan to fund Aged Care entry costs.

Top 3 things to consider when funding a RAD with a reverse mortgage:

• There is a maximum five years’ term for aged care reverse mortgages
• You will need CentreLink clarification on whether the reverse mortgage proceeds adversely affect Age Pension and other Government benefits.
• All aged care applicants also need to complete the Combined Assets and Income Assessment Form (SA457) provided by Department of Human Services.

What is a reverse mortgage?

It will allow you to borrow against the equity in your home, without having to sell, by releasing funds for comfortable years ahead in retirement.

It is a loan available to homeowners, 60 years or older, which allows them to convert part of the equity in their home into cash.

Can be taken against the family home as well as investment properties.

If you have already paid off your mortgage, you may benefit from taking a reverse mortgage to access funds to shoulder some retirement expenses such as aged care, home renovation, debt consolidation and more, while continuing to have full ownership of your home.

At the same time, you can keep accumulating equity in your home as property prices rise and avoid many of the costs associated with downsizing, such as real estate fees, moving costs and stamp duty.

The loan can be drawn down as a lump sum, regular income plan or a line of credit, so you have flexible options depending on your circumstances. One of the additional benefits of a reverse mortgage is that you can stay in your home for as long as you choose.

Safeguard you and your property by choosing the right reverse mortgage

• Look for loans that will allow you to draw funds as and when needed rather than all upfront
  Ownership of your home stays with you
• Protect the amount of equity left in your home at the end of the reverse mortgage (most people have chosen up to 50% of home equity protected and thus available to the estate)
• Repayments are not required, however, you can make payments big or small at any time and be able to redraw
• Ensure you receive independent legal advice
• Ensure you receive independent financial advice
• Involve the family and other beneficiaries in the decision

By Ambreen Sumar, Lending Specialist

The post Funding an Aged Care Refundable Accommodation Deposit (RAD) with a reverse mortgage appeared first on AdviserVoice.

Sumar Ambreen

A Refundable Accommodation Deposit (RAD) payable on entry in aged care is often a large amount of money to find in a hurry and many people think selling the family home is the only option open to them.

Selling off the much-loved home can be a distressing outcome for most people. However, in many cases the house can be retained by using a reverse mortgage loan to fund Aged Care entry costs.

Top 3 things to consider when funding a RAD with a reverse mortgage:

1. There is a Maximum 5 years’ term for aged care reverse mortgages
2. You will need CentreLink clarification on whether the reverse mortgage proceeds adversely affect Age Pension and other Government benefits.
3. All aged care applicants also need to complete the Combined Assets and Income Assessment Form (SA457) provided by Department of Human Services.

What is a reverse mortgage?

It will allow you to borrow against the equity in your home, without having to sell, by releasing funds for comfortable years ahead in retirement.

It is a loan available to homeowners, 60 years or older, which allows them to convert part of the equity in their home into cash.

Can be taken against the family home as well as investment properties.

If you have already paid off your mortgage, you may benefit from taking a reverse mortgage to access funds to shoulder some retirement expenses such as aged care, home renovation, debt consolidation and more, while continuing to have full ownership of your home.

At the same time, you can keep accumulating equity in your home as property prices rise and avoid many of the costs associated with downsizing, such as real estate fees, moving costs and stamp duty. The loan can be drawn down as a lump sum, regular income plan or a line of credit, so you have flexible options depending on your circumstances. One of the additional benefits of a reverse mortgage is that you can stay in your home for as long as you choose.

Safeguard you and your property by choosing the right reverse mortgage

• Look for loans that will allow you to draw funds as and when needed rather than all upfront
• Ownership of your home stays with you
• Protect the amount of equity left in your home at the end of the reverse mortgage (most people have chosen up to 50% of home equity protected and thus available to the estate)
• Repayments are not required, however, you can make payments big or small at any time and be able to redraw
• Ensure you receive independent legal advice
• Ensure you receive independent financial advice
• Involve the family and other beneficiaries in the decision

By Ambreen Sumar, Lending Specialist

The post Funding an aged care deposit with reverse mortgage appeared first on AdviserVoice.

Sumar Ambreen

Most Australians aged 65 and over own their own home. A reverse mortgage will allow you to borrow against the equity in your home, without having to sell, by releasing funds for comfortable years ahead in retirement.

If you have already paid off your mortgage, you may benefit from taking a reverse mortgage to access funds to shoulder some retirement expenses such as aged care, home renovation and debt consolidation while continuing to keep full ownership of your home. At the same time, you can continue to accumulate equity as property prices rise and avoid many of the costs associated with downsizing, such as real estate fees, moving costs and stamp duty. The loan can be used as a lump sum, regular income plan or a line of credit, so you have flexible options depending on your circumstances. One of the additional benefits of a reverse mortgage is that you can stay in your home for as long as you choose.

Income, Cash Flow and Pension Top-up

As a senior on limited income, you may be finding it difficult to make ends meet. Most seniors also need to pay medical and prescription bills. Worrying about where to find the money for everyday expenses can be an added burden during retirement. Having the additional monthly income that a reverse mortgage can provide means you can enjoy coffee with friends at your local café or indulge in a dinner outing now and then without worrying if you can make it to your next pension payment.

Home repair and renovations

Reverse Mortgages can also be used for repair and renovation purposes. For example, there may be important health or medical reasons why certain home improvements are needed, which can prove costly when considering changes like wheelchair access. In addition, older homes that have been neglected over time can cause costly issues for home owners and may result in permanent damage to the property which can then reduce the value of the home. Maintenance and repairs can often exceed thousands of dollars that would be otherwise out of reach to those living on a pension.

Debt Consolidation

You may not be aware, but many Australian seniors share a common problem of struggling to meet the monthly repayments for high-interest loans or credit cards. A Reverse Mortgage allows you to consolidate your debt and repay one loan at a lower interest rate.
Refinance existing home loans for retirees
You may still be paying off your home mortgage after retirement. With a reduced income you may find it difficult to maintain a lifestyle that you’re accustomed to as well as continuing your mortgage repayments. A reverse mortgage can be a cost-effective solution to the problem by refinancing your mortgage.

Aged Care

Refundable Accommodation Deposit (RAD) – The Bond, is a large amount of money that many retirees often find difficult to pay. Most people think selling the family home is the only option, which can be a distressing outcome for the family. However, in many cases the house can be retained by using a Reverse Mortgage loan to fund Aged Care entry costs.

Travel & Holidays

Many seniors miss out on the travel they desire because they simply can’t afford it. Those who do manage to get away usually finance trips with their savings, superannuation, personal loans or credit cards with high interest-rates.

Organising a reverse mortgage may help you climb aboard that cruise you’ve always dreamed of, fund a visit to your family interstate or overseas, or finally taking that tour through Europe with friends.

When considering your retirement funding options, it’s also important to consider protecting your assets, so you should also consider:
Safeguarding you, your property and its equity with the appropriate levels of insurance

Updating your estate plan to make sure your affairs are in order in the event of incapacity or death, so you can rest easy knowing your family doesn’t have to worry

If you need a financial strategy to make your hard-earned money last well into your twilight years so you can continue to enjoy your retirement for as long as possible.

By Ambreen Sumar, Lending Specialist

The post Reverse Mortgage – Living with ease in the golden years appeared first on AdviserVoice.