When you finally decide to retire, the last thing you want to worry about is paying off any existing debts or how you’re going to be able to afford to live a comfortable lifestyle. The sad fact is that a lot of Australians simply do not have enough in their superannuation to be able to live comfortably in their later years.
This is especially true for divorced women and single mothers who were only working part time while raising their children and looking after the family. Of course, there are also single dads out there who have opted to become the main carers for their young children and thus have not had the financial means to invest heavily in their superannuation over those years.
For these people and many others, a senior’s pension may be the only income that they can hope to receive when they decide to retire. This is most likely, one of the reasons that many are continuing to work well into their seventies.
There Is A Better Solution To Easing The Retirement Squeeze
Luckily there is a better solution if you own your own family home. A reverse mortgage can unlock some of the equity in your home and provide you with extra cash to live on. Plus if you still have a little owing on your mortgage, you can use a reverse mortgage to pay out that loan and never have to worry about making regular payments if you don’t want to.
Another benefit of a reverse mortgage is that you can draw some of the amount in a lump sum if you happen to have any other debts that you would like to clear or you need to replace your car or have some urgent home repairs that need doing.
What Are The Benefits Of A Reverse Mortgage?
The biggest benefit of taking out a reverse mortgage on your home is that you don’t have to make any repayments. The loan gets paid out when the home is sold after you move into aged care or when you die.
Other benefits include:
- You can pay out any existing debts that you may have.
- You can use the funds to purchase a new car or take a much needed holiday.
- You can also use some of the funds to do some home improvements so that you can live more comfortably as you get older.
- You can opt to receive regular payments to top up your pension to help you with your day to day expenses. These can be on a monthly basis and are very similar to purchasing an annuity.
- You can also choose to have a line of credit so that if an unexpected large expense comes up such as a medical bill, you can draw down the money to pay for it instead of using your pension and any savings that you may have. The benefit of this is that you only draw down on what you need each time and hence, interest is only charged on the amount that you have borrowed.
- You can use some of the funds to help out your children or grandchildren with such things as education costs
So a reverse mortgage can give you peace of mind in knowing that you will have funds available when you need them and you’ll be able to live much more comfortably in your retirement years.
Plus of course, you get to stay in your family home for as long as you possibly can without the need to sell up and downsize.
So What Are The Trade Off’s For This Peace Of Mind?
As with any type of borrowing, there are always advantages and of course, some trade off’s that you need to consider. The two main disadvantages that you’ll have to consider before taking out a reverse mortgage are that you will be accumulating a debt and that a reverse mortgage will reduce your children’s inheritance.
This is due to the fact that interest is accrued on the amount that you borrow and added to the overall debt. Because you don’t have to make any repayments on a reverse mortgage, your debt will continue to grow until the home is sold and the mortgage is paid out.
Thankfully though, a reverse mortgage is a non recourse loan which means that you can never owe more than what your home is valued at when it is sold. This means that your children won’t be left with a debt after you pass away.
What Happens When You Can No Longer Stay In Your Home?
If you find that you can no longer stay in your home and you need to move into aged care then there are a number of choices that your heirs can make. They can sell the home and pay of the reverse mortgage. Any money left over from the sale can be divided amongst them or used to pay for your care.
You can also choose to preserve part of the equity in your home to pay for aged care so that your children don’t have to be concerned about paying for these aged care fees.
Your heirs can also have the option of keeping the home if they can pay out the reverse mortgage or they could take out a standard mortgage to pay it out instead. This means that the home can stay in the family if that is what you and children wish.
Do The Advantages Of A Reverse Mortgage Out Weigh The Trade Off’s?
Whether the advantages of a reverse mortgage out weigh the disadvantages is a decision that can only be made by you and your family. And of course, this would also greatly depend on each individual’s circumstances.
Many retirees would agree however, that having that peace of mind in their retirement years that they won’t need to worry about having enough cash to live on or knowing that they’ll always have funds available in case of an emergency, far out weighs the disadvantages.
Before you decide to take out a reverse mortgage, make sure that you do your research and consult a professional who will be able to assist you in determining what you could end up owing on your home over the life of your retirement years.