Reverse mortgages beckon for self-funded retirees seeking income

by Darren Moffatt on August 7, 2013

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With news yesterday that the RBA has cut the cash rate to a record low of 2.5%, many self-funded retirees are now really feeling the pinch.

Since the GFC and the rapid decline in both share dividends and term deposit interest rates, self-funded retirees have struggled to generate a return off their investments that is adequate to fund the retirement lifestyle they had expected.

Now these record low interest rates will make that objective even harder.

Thankfully, there are options available to seniors who are seeking more ‘income’ in retirement. A senior’s home equity loan – otherwise known as a reverse mortgage – with a ‘cash reserve’ facility can be a good way to bridge the gap.

Here’s roughly how it works: you establish a pool of available funds as a percentage of your home value, but only draw down small sums gradually over time to help fund your retirement living. You only get charged interest on the money you actually draw as you use it – not the full amount available. So a reverse mortgage used in this fashion becomes much more cost effective than traditional perceptions of these loans might indicate.

The funds drawn are your ‘equity’ so they are generally not deemed to be ‘income’ or ‘assets’ by Centrelink (unless you go gift or invest funds, but in any case you should check with Centrelink if you are receiving any pension).

In my work for Senors First, it is increasingly common to hear from self-funded retirees in this position and the good news is we can often help.

For any questions or information around options home equity options to support your retirement income, please email [email protected]

*Disclaimer: the content of this post is for information purposes only and does not constitute financial advice.

{ 2 comments… read them below or add one }

Malcolm Powell November 6, 2013 at 12:45 pm

I’m 63 y.o. living in Invermay, Tasmania in my home which I own 100% with a very small credit card debt. My intention has been to sell my house in around 18 months and move to the NSW South Coast to be closer to my son who lives in Sydney. I had hoped to obtain a reverse mortgage type of loan to tidy up the house a bit prior to sale. I have not been able to find reverse mortgage available in Tasmania other than after I turn 65 y.o.

Are you able to provide any information about reverse mortgage or home equity loans available to people in Tasmania of my age of 63 y.o.

Malcolm Powell

Darren Moffatt November 7, 2013 at 12:01 pm

Your case is difficult Malcolm. The only possible lender who may do a reverse mortgage for you right now is St George bank. Good luck.

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