Reverse mortgages go by many different names, some of which include Seniors Equity Release, Equity Unlock and Accommodation Bond.
A reverse mortgage is a niche loan solution that applies to a growing group of people who, as they age, are finding themselves asset rich and cash poor. A reverse mortgage enables a person or couple to access funds by taking a loan against the equity they have in a residential property either as a lump sum or as a regular payment depending upon the individual’s needs.
So why would you want a reverse mortgage? Well, let’s say you have a comfortable home in a suburb you are happy living in but the ongoing costs of rates and taxes, maintenance, insurance and so on are proving difficult to manage on a retired income.
One solution may be to sell the home and downsize, but this approach can cost a lot of money in real estate commissions and perhaps stamp duty on the purchase of a new home. These costs can be substantial, especially if all you actually need is maybe 10 to 20% of the value of your current property, paid to you either as a lump sum or a steady regular payment to help you stay where you would rather be.
A reverse mortgage can be an attractive option for people who are asset rich but income poor, because you do not need to make monthly loan repayments to the loan. Your lender will charge interest every month to the loan, but you don’t have to pay that cost if you choose not to. The interest will gradually increase what you owe the lender, which in turn will reduce the equity you have in your home. Reverse mortgages are definitely not without costs; however, depending on your circumstances, a reverse mortgage may be an attractive solution for you.
Accommodation bonds are slightly different as they are for the specific purpose of helping meet the costs of getting into an aged care facility. Additional funds may be released depending upon the age of the person concerned. These additional funds can be allowed to continue for up to 5 years following the move into care, depending upon the level of equity in your property.
Importantly, so long as you obtain your reverse mortgage facility from a reputable provider, the facility will come with a “no negative equity guarantee” – meaning that you can never owe the lender more that the property is worth.
Reverse mortgages are not right for everybody but with guidance from family and professionals such as your finance broker and financial planner, they can provide a different option for retirees who are cash poor but property asset rich. If you or a family member is considering a reverse mortgage or looking for a way to finance a place in an aged care facility, contact your broker today.