We will be publishing a series of blog posts discussing possible life changing events, how it impacts your finances and most importantly, the biggest commitment you may have – your mortgage. Our posts are contributed by Mortgage Choice brokers covering a number of topics including (in no particular order):
- Planning for marriage
- Planning to have children
- Working overseas/interstate
- Buying a car
- Major personal injury
- Retirement and reverse mortgage
- Empty Nesters
- Loss of employment
We'll be publishing the above posts on a regular basis so be on the lookout! Feel free to suggest new topics by leaving us a comment.
Celebrating the empty nest
After all these years it's finally happened – the kids have left home and the house is all yours. Mortgage
Choice broker Linda Ireland looks at the options available for empty nesters to make the most of their home.
It had to happen eventually. The kids have grown up and flown the coup, and your home is probably quieter and tidier than it's ever been.
For some empty nesters, this new chapter in life can bring a sense of loss. But it also marks an exciting transition from one stage of life to another, and there are plenty of ways to put a much-loved family home to
work in preparation for yet another phase of life – retirement.
Many empty nesters are 40 or 50-somethings in their peak earning years. So with the kids gone, chances are there is a lot more cash available. Plenty of people are keen to put this money to work purchasing an investment property, and as an older borrower applying for an investment mortgage, you will need to demonstrate a strong asset position and an exit strategy.
This means being able to demonstrate how you will be able to pay out the mortgage once you retire, without relying on the sale of the property to repay the loan. Some people plan to use their superannuation savings to clear the loan. Others choose a shorter loan term of, say, 15 years.
Putting home equity to work
As a home owner, you may not need to dip into valuable cash reserves to fund an investment property. It may be possible to put existing home equity to work in lieu of a cash deposit.
As a guide, this could mean taking out a loan secured by your home that provides a 20 per cent deposit plus purchase costs on the investment property, with a new loan secured against the rental property, which funds the balance of the purchase price.
Some empty nesters plan to hold onto their existing home and rent it out for the long term while borrowing to fund a new, often smaller home. However, turning your home into an investment property has tax implications. For example, if your home is owned mortgage-free or the balance of the loan is small, the property is likely to be ‘positively geared', meaning you won't be receiving the tax benefits associated with negative gearing. Anyone considering this option should seek tailored advice from their accountant and/or financial planner.
A more common approach is for empty nesters to sell the family home and downsize to a property more appropriate to their new lifestyle. For many empty nesters it has been quite some time since they last applied for a mortgage, and the sheer range of lenders, loans and flexible features available these days can be pleasantly surprising.
- The main thing is to think about laying foundations for retirement today. Be sure to get good advice and put plans in place now before time slips away and you find retirement is just around the corner. Your home holds plenty of treasured memories from the past but it can also hold the key to a wonderful future.