At Seniors First, we noticed that many of our customers include a line of credit component when they establish a Reverse Mortgage loan.
In unlocking your home equity, you can set aside a percentage to set up a ‘cash reserve’ (otherwise known as a ‘line of credit’) that you can easily access anytime you want.
Here are 10 ways a line of credit style facility can benefit you:
1. Peace of mind
You never know when there might be an unexpected health emergency, dental bill, house repair or car problem that needs fixing.
Or if you live in a unit, a special levy can be an unexpected burden.
Having access to a pool of funds brings considerable peace of mind knowing there’s money available to meet larger or unexpected expenses.
2. Easy to access
Your chosen lender can offer easy and flexible access to your money including the traditional telephone banking, debit card, internet banking or even through a mobile phone app.
3. Zero interest charged on undrawn funds
While available anytime you need, the undrawn money in your reserve will not incur interest charges.
Your bank will start calculating interest on the drawn portion of your loan.
So, if you borrow $180,000, but you have only drawn $5,000 at the start, the interest will only be calculated on the $5,000.
4. It probably won’t reduce your Age Pension*
Centrelink will not assess the unused line of credit component of your Reverse Mortgage as an asset, so it won’t affect your age pension entitlements.
However, if you draw the money down, gift it, or invest it, it may affect your pension.
*We always recommend you consult with Centerlink before establishing a Reverse Mortgage and discuss any concerns.
5. Income supplement
A line of credit style facility can provide ongoing income support above and beyond your pension (or other income).
This could be through an automated draw down, or simply draw down what you need to pay your credit card off in full each month.
IMPORTANT: although the money you draw out can feel like income, it is actually home your equity. Therefore, it is not taxable.
6. More flexible drawdown option
One of the main reasons Reverse Mortgages had somewhat of a bad reputation in the past is because many loans didn’t offer a line of credit facility.
You previously had to draw down the whole amount straight away. Today, you are getting a much better Reverse Mortgage loan product.
The line of credit component delivers a big reduction in interest costs compared to the past, while your house continues to grow in value over the long term.
7. Widow support
Couples generally benefit from approximately $12,000 a year extra on the age pension compared to singles.
While it’s not a nice thought, the passing of a spouse can lead to financial challenges for the person left behind.
It’s not like your rates, petrol, electricity and insurance suddenly become cheaper when there’s one of you.
Establishing a line of credit style facility with a Reverse Mortgage gives you both comfort knowing that if the unthinkable happens, the person left behind will have financial support.
8. No extra set up costs
The lenders at Seniors first don’t charge any extra for you to have a line of credit style facility.
Loan size does not change your establishment fees.
However, your ongoing costs may vary. While some lenders give you free access to your line of credit, others can charge drawdown fees.
9. A deposit one day
A Reverse Mortgage doesn’t have to be a lifetime commitment.
If you plan on selling one day, or even if you intend to stay but circumstances change, the funds in a Reverse Mortgage line of credit may have an unexpected benefit.
It gives you a ready-made deposit to help purchase your next home without the need for bridging finance, or the need to coordinate the timing of your sale and purchase.
10. No regular repayments
The cash reserve feature within a Reverse Mortgage is not technically a line of credit loan.
A traditional line of credit offered by banks usually requires regular interest repayments and has a limit which, once reached, could require a refinance or sale.
A Reverse Mortgage requires no regular repayments (the debt plus any interest or fees owing is ultimately repaid when the property is sold). When you reach your limit (loan maximum), you can stay in your home for the rest of your life.
The similarity lies in the fact in that interest is only calculated on the drawn portion.
Other Reverse Mortgage Loan Drawdown Options
Aside from line of credit, you may also receive the proceeds of your loan either through a lump sum or as a regular income.
Our lenders can pay you a lump sum money at the start of your loan. Policies between lenders vary, but some have a minimum drawdown for this option is of $10,000, unless you are planning to use the money for in-home aged care.
This option is ideal for debt consolidation, home renovation, new car purchase, or even a holiday.
Meanwhile, receiving regular advances is ideal if you are planning to draw on your loan gradually, to supplement your retirement income. It’s great if you need help covering living expenses.
This option will allow you to set a regular drawdown payment (monthly, quarterly, or yearly) for up to 10 years.
The regular amount you receive feels like ‘income’ but it is actually a small portion of your home equity.
You can set the amount you receive from hundreds, to thousands of dollars each month. The limit is determined by the value of your home, your age and the term schedule.
Consult a Reverse Mortgage Broker
If you want to establish your Reverse Mortgage cash reserve, you may schedule a meeting with a mortgage advisor from Seniors First.
Just call 1300 745 745 or CLICK HERE to check your eligibility.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Please consult a licensed financial advisor before you make any decision.