March 16, 2010
It is no secret Australia's ageing population will place increasing pressure on our economy. We are living longer than ever before, which means we need to fund an increasing number of 'golden years'.
What options do older Australians have when it comes to financing their future?
Investing in the share and property markets is a popular strategy for accruing wealth and earning income over one's lifetime. One not so well-known option for home owners nearing retirement and retirees needing additional funds is a reverse mortgage (seniors loan).
Reverse mortgages allow eligible seniors and near-seniors to borrow up to a percentage of the value of their home or investment property and repay the debt via repayments, or from its sale when they move or pass away. During the loan period, the extra money assists them in achieving their lifestyle goals with greater comfort and peace of mind.
Australia's largest independently-owned mortgage broker, Mortgage Choice encourages mature 'asset rich, cash poor' property owners to review their budget, asset wealth and financial portfolio plans before considering utilising property equity to help finance and enhance their retirement living.
Mortgage Choice senior corporate affairs manager, Kristy Sheppard said "Our ageing population is resulting in a smaller proportion of working Australians supporting a larger proportion of retired seniors. What we may see happening in the near future is retiree living standards declining while medical costs become more expensive."
"Australians tend to be more lifestyle-focused than those in many other countries and are keen to make the most of retirement years. Working later in life for extra funds is an option, if you can find work. According to ABS underemployment data* for September 2009, 23% of all part-time workers who were 'available and looking for more hours' were aged 45 years and over.
"I am surprised reverse mortgages aren't more popular in this country, given our changing demographic. It would be terrific to see the government provide more support to this area and raise more awareness. When managed and understood correctly, reverse mortgages can be an ingenious option for those wanting greater financial comfort in their twilight years.
"Perhaps we simply need to dispel any rumours and discuss the pros and cons more openly. A number of lending institutions offer these loans, so visiting a reputable mortgage broker is a valuable experience for anyone thinking about utilising their property in this way.
"Of course, there are important considerations to make. First, find out which lenders offer a 'no negative equity' guarantee, which means the borrower will not have to repay more than the value of their property. Also remember that, just like other mortgages, interest is payable.
"The prospective borrower should discuss their thoughts with family and other beneficiaries. They should also discuss it with an accountant and/or a financial advisor, to be sure the solution meets their goals and to explore the financial impact. A solicitor should satisfy any legal queries and the impact on Centrelink payments should be researched. Finally, contact a reputable mortgage broker to research the range of suitable products available.
"Retirement should be a time to put up your feet and enjoy those 'golden years'. If you have the knowledge and the means, why not use some of your property equity to help ensure this happens?"
Call the customer service centre on 13 MORTGAGE.
*ABS Underemployed Workers report 6265.0, September 2009
For further information or to arrange an interview, please contact:
(02) 8907 0472 / 0407 416 124