A Seniors Loan or a standard Reverse Mortgage can be a real Godsend to those reaching retirement with inadequate superannuation or savings to cover the rest of life. It is hard to discover that the pension is insufficient to provide for the lifestyle they are accustomed to or still dream of, or the medical expenses they weren’t planning for. Maybe it’s a special holiday they would enjoy, or a project they would like to be involved in and perhaps it is a whole bucket list still to be fulfilled.
The obvious choice for those with inadequate funds, is to sell their home and downsize. This can be costly. On the selling side, costs include Real Estate Agency selling fees which are typically 2.2% to 3.3% of the selling price, plus marketing and advertising costs, legal fees and moving costs. Then, on the buying side there is stamp duty and legal fees on the subsequent purchase, not to mention the emotional cost of searching and settling for something less than desired.
Many want to stay in their family home and remain in the area they are used to. They may be daunted by the idea of dispatching many of their loved possessions, packing the rest, and moving to a whole new area, away from their friends and family.
For those who want to stay in their existing home, another option is to take part of the value of their home as a loan, and then use that to enhance their retirement. This is the Seniors Loan, otherwise called a Reverse Mortgage and it is designed to provide customers with the financial freedom to enjoy their retirement. A Seniors Loan option avoids the previously mentioned expenses, and at the same time takes advantage of the potential of a greater capital gain, on a more valuable current family home.
Depending on your age, a set percentage of the value of your home can be taken, with no repayments necessary provided one of the customers is living in the home. The amount available to be borrowed is calculated based on the age of the youngest borrower. The percentage able to be borrowed is from 15% at age 60 to 25% at 70, 30% at 75 and up to 35% at 80 years old and 45% at 90 or over. If the property is an investment or holiday home the maximum amount available is reduced by 10%. Loans cannot be secured against properties in Retirement Villages and the property value must be at least $200,000.
A minimum lump sum must be drawn on settlement. A cash reserve option can be arranged for the difference between the maximum approved loan and the initial lump sum taken at settlement. Additional amounts can then be drawn down as needed from the cash reserve.
Alternatively, a regular payment option can be arranged for monthly, quarterly or annual advances over 5 or 10 years.
Instead of making repayments to cover the interest, or pay back the loan, the interest due each month is added to the loan balance. There is a guarantee that no matter what happens in the housing market, the amount owed can never become more than the value of your home. A percentage of the equity of your home can be protected if desired, however this decreases the maximum amount which can be borrowed.
Additional amounts can be applied for, or a Seniors Loan can be refinanced within the percentages available and the current valuation of the property.
A Seniors Loan can be used for almost any purpose such as home improvements, motor vehicle needs, in home care, debt consolidation, permanent long term care, day to day living expenses or to travel and live one’s dreams or fulfil a bucket list.
This is a way of using whatever value in the home is needed, without selling the home and incurring unnecessary expenses, without disconnecting from the life and social contact you are used to, and taking advantage of a potential greater capital gain. The Loan only becomes repayable when the last customer passes away, moves into permanent long term care or the property is sold.
When applying for a Seniors Loan it is recommended that customers discuss their intentions with their family and investigate if their Center Link benefits or Government support payments or entitlements will be affected and plan the loan accordingly. Legal advice is required when signing the loan documentation. A specialist lender or broker will provide you with specific product information and how it applies to your requirements, as well as make sure you understand fully the loan product they are supplying.
It is quite surprising how many of the next generation are so pleased to see their parents take on a new lease of life when they are provided more financial freedom. No longer do children need to provide for their parents, and the parents are so much happier to know they are providing for themselves from their own resources.
One word of warning. There is a type of Seniors Loan where the lender buys a share of your home and becomes a part owner of your home. I would not recommend this type of loan ever as you then do not have full control over your home. Make sure you are taking a mortgage and are not selling part of your home.
For more information about a Seniors Loan, contact Sandra Dignam from Every Loan who will be happy to clarify this option in detail, in relation to your specific situation, your property and your age.