Reverse mortgages gaining popularity in Australia
It's the great Australian dream: owning your own home, settling in peace and happiness to bring up your family and live the life you and your loved ones desire. You hit your fifties, your children leave home and, to your delight, you realise that the value of your modest three bedroom home has grown substantially.
For many people their house is their greatest asset. But bricks and mortar just can't cover their everyday living expenses and can't provide those extra funds needed for life's little luxuries. Maybe those other investments, set up specifically to provide an income in retirement, haven't performed as expected.
The reverse mortgage
Designed to free up funds in retirement, the reverse mortgage is gaining popularity fast. By the end of 2010, over 41,000 Australians were using reverse mortgages as an option to fund their retirement, loaning a grand total of $3 billion. An incredible increase of 11% compared with the previous year.
Australians are living longer than ever before and, coupled with improved health and advances in medical technology, are able to enjoy a retirement lifestyle not even contemplated in decades past. The idea of an inheritance, leaving the family home to children or grandchildren, is declining as retirees realise the financial potential in their homes.
The ability to free up equity has seen many older Australians content to squeeze every last cent out of their assets before they die. In fact, surveys have shown that of all people surveyed, more than a quarter would be satisfied to use up all of their own assets leaving nothing for their children when they die.
Changes have also been seen in the way retirees are spending their additional funds. Previous generations would have used their freed-up equity to fund medical expenses, buy necessary household goods or even assist their children financially. The present-day baby boomers are looking to supplement their existing income, finance luxury items or fund interstate and international travel. See the Money Buddy reverse mortgage calculator to see how this type of loan could assist you in retirement.
As the fastest growing sector of the mortgage market, reverse mortgage applications do not look like slowing down anytime soon. However, consumers still need to be careful when selecting a product. An accreditation course introduced in August 2006 by the Senior Australians Equity Release Association of Lenders (SEQUAL) is designed to make equity release products safer for all consumers. Mortgage brokers and financial planners who pass the course will be entitled to display a certificate in their workplace.
SEQUAL also suggests consumers get good financial advice before applying for a reverse mortgage. Product providers, such as banks and mortgage houses, are only required to provide legal advice and most do not offer any more than the minimum.
Finally, always make sure your chosen product comes with a no negative equity guarantee. Spending your children's inheritance is one thing, but forcing them to repay a potentially substantial debt, not covered by the sale of your asset, is not a great legacy to leave behind.