A recent study conducted by SEQUAL, It’s on the house, showed that although 78% of people over 60 had heard of reverse mortgages, only 40% correctly understood how they worked.

In fact, the study showed 28% of seniors held the incorrect belief that a reverse mortgage involved selling a portion of the home.  This is probably at least partly due to the sustained and significant marketing efforts of Homesafe Solutions for the Bendigo Bank Seniors Equity product.  Known as debt free equity release, this is completely different from a reverse mortgage, and does involve a part sale of the property in return for a cash payment.

Although a lot of progress has been made over the last few years, SEQUAL and the industry at large need to do a better job of educating seniors on exactly how these loans work. SEQUAL is asking the federal government to help, perhaps by way of an information campaign. While this would certainly help, it’s probably unlikely in the current climate of government cost-cutting.

So what to do? Well, for a start SEQUAL must more fully engage brokers and intermediaries as a grass roots education channel to other business sectors such as law and aged care. For instance, the understanding and cooperation coming from the legal sector is very poor in some states.

In addition, community and senior organistations  must be more fully engaged by local representatives so that the correct message is disseminated on a regular basis. Ultimately this is about protecting seniors through education, and the industry can’t rely on government to do this important job.   

For many retirees on limited funds, this becomes the big dilemma. In most states, the process of selling your home and downsizing to buy a smaller dwelling will cost $40-50,000 by the time you factor in stamp duty, agents fees and legal costs etc.

In addition, many people are forced to re-locate to a new area, away from their family, doctor, friends and community. This is often the most distressing aspect of downsizing.

However, accessing some of the value in the home via a reputable equity release provider can give you more cash and allow you to stay in the home you love. You need to do the sums, but in many cases it will be more cost effective to borrow via a reverse mortgage or similar, than to downsize. A good specialist finance broker will help you with this exercise.

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MFS; Centro, Allco; ABC Learning; City Pacific - just some of the big names that have been battered by the recent share market slump. If you had money invested in these stocks (and many seniors did) you’ve probably seen your retirement investment portfolio take a big hit. Or perhaps your super now looks like it won’t last as long as you had thought?

Either way, you’re not alone. This is becoming an increasingly common problem, particularly for self-funded retirees. Whilst the increase in cash rates is positve for those with money in fixed term desposits,  if you’ve been relying on dividend income then you may now find yourself short.

If however you own property, then it’s very possible you can use your house to bridge the gap. It’s still relatively unknown that seniors in Australia can use a reverse mortgage or equity release plan to give them a regular income stream. Known as an ‘instalment plan’ or ‘income plan’, a set amount is deposited monthly into your nominated bank account.

The benefit of taking a senior’s loan in this fashion, is that the interest is only accumulated very gradually as each monthly payment is received, therefore maintaining equity much longer than if funds are borrowed as a lump sum. In addition, it will also be less likely to have any adverse impact on the government aged pension.