Majority of Australian seniors are still reluctant to unlock their home equity through reverse mortgage loan.
Recent report from the Productivity Commission reveals that less than 1 per cent of older Australians use financial products to tap into the substantial wealth of their home. The same report also shows that age pensioners tend to be overly frugal and hold on to assets and even build a buffer of savings even into their later years.1
(Related Article: Housing Decisions of Older Australians [Infographic])
Senior finance education advocates such as the Senior Australian Equity Release Association (SEQUAL) are encouraging more Australians to consider equity release as their primary option to supplement their retirement income.2
Even the Productivity Commission itself believe that most older Australian home owners on low incomes could achieve a modest retirement living standard over the remainder of their lives by converting a percentage of their home asset to liquid cash.
So this 2016, why not consider unlocking your home equity? Here are the top five reasons to further convince you.
Top Five Reasons Why You Should Consider Getting a Reverse Mortgage This 2016
1. It Can Improve Your Standard of Living
Once you stop working, your income could be significantly reduced. Relying on pension or superannuation may not be enough to sustain the lifestyle you need. Superannuation were only mandated by the Government in 1993. Hence, if you began working in the 50’s, 60’s, or 70’s, there is less chance that you have accumulated a significant amount.
Many seniors today don’t have enough cash for daily needs, yet they are living in homes that are worth hundreds of thousands and even millions. If you own your home, you can turn a percentage of it to cash, which you can use to make sure that you can live comfortably while in retirement. You can receive it in lump sum, or you can opt to receive monthly cash as additional income.
2. It Can Help the National Economy
The Australian government is now doing precautionary measures to resolve the rising cost of aged care. According to the 2015 Intergenerational Report released by the Commonwealth of Australia, the $42 billion that we are now spending on pensions is expected to grow to $160 billion by 2055. About 80% of seniors today are expected to still receive their pensions four decades from now. This will put a lot of strain on the Australian economy.
The government encourages seniors to unlock their home equities as it will mobilize the idle assets estimated to be worth around $625 billion. The government is still considering to include family homes in assets tests, which could make you ineligible for full pension if you own your home.
The Pension Loans Scheme (PLS) is a form of reverse mortgage that is being offered by the government, which grants 45% of home value. In 2014, the PLS released loans amounting to $31.9 million, which is just a blip in the ocean when you compare it to the $625 billion worth of properties that can be unlocked by senior home owners. In this government plan, you can use your home equity to access cash, but you will lose your right for full aged pension.
This plan could be an attack to pensioners, and we could sugar coat this plan by persuading you that your living standards will improve.
But take time to consider this. You have worked for many years, paid for your mortgage, and accumulated this wealth. You have already earned it, so why don’t you enjoy it? This is a viable solution to take some of the strain of aged care costs.
Today, three out of four Australian seniors own their homes. Unlocking home equities can help the whole country to prevent a huge debt problem decades from now.
3. It Can Help you Pay All Your Debt
Surely, you don’t want to spend your retirement years worrying about high interest debt. However, it is a fact that seniors living on aged pensions are finding it more difficult to sustain standard living and many are using credit cards just to make ends meet.
Many Australian seniors are using their pensions to pay high-interest debt after their retirement. A 2014 report released by SEQUAL shows that about 30% of their clients have used reverse mortgage to pay off their debt.
You can save money on loan repayment while getting peace of mind when you obtain reverse mortgage loan. More often than not, you will not be qualified for an equity credit line or second mortgage if your income is mainly from pension or superannuation.
Obtaining a reverse mortgage will give you access to cash that you can use to pay off all your debt. You can spend your retirement without worrying about repayments, as repayments for reverse mortgage could be voluntary.
(Related Article: End FInancial Worries in Retirement with a Reverse Mortgage)
4. Realize Your Dream Holiday with a Reverse Mortgage Loan
After long years of working hard and building your personal wealth, you have now all the time in the world to do anything you want. Why not realize your dream holiday this year? You can spend weeks in a Caribbean Cruise. Visit your grandchildren in New York. Or finally see the Great Pyramids of Egypt with your friends. Nothing could hold you back, except if you don’t have money to finance your travel and holidays, of course.
Rather than using your pension or spending your personal savings to fund your holidays, you can unlock a percentage of your home equity to access more cash through reverse mortgage loan. Seniors First provides reverse mortgage loan to finance your dream vacation. And with interest rates that are usually much lower compared to personal loans or credit cards, you can save thousands of dollars. So start planning for your grand holiday this year!
5. You Are Protected
Even though reverse mortgage has gained bad press a decade ago, more stringent rules and wider range of product options have made reverse mortgage safe. Today, reverse mortgage has become a legit financial solution for senior Australians.
Once you obtain a reverse mortgage loan, you are protected as you can’t be forced out to move from your home. The government is also now imposing a non-recourse loan contract, which prohibits the lender in touching your other assets in case of default. There is also the no-negative equity guarantee, which means you will not be held liable for a loan that is more than the value of your property. Hence, even if the interest accumulates as you live longer, the lender will not charge you for more than the worth of your house.
Next Steps
Make 2016 the day you gain freedom from your financial woes and live the life you want through the help of reverse mortgage. If you want to learn about reverse mortgage in detail, you can download our guide, Reverse Mortgage Secrets. This FREE special consumer report will help you learn more about reverse mortgage and how you can enjoy your home equity safely and save thousands.
You can also call Seniors First Finance at 1300 745 745 or post your comments below.
References:
1Productivity Commission 2015, Housing Decisions of Older Australians, Commission Research Paper, Canberra.
2Senior Australian Equity Release Association (SEQUAL) http://www.sequal.com.au/who-is-sequal
