Unlocking some of the equity in your family home in the form of a reverse mortgage is one way to enjoy a better standard of living in retirement. Reverse mortgages have grown in popularity over the past 10 years as more people realise the benefits they can provide to having a better retirement lifestyle.
In fact, according to a report released by the Productivity Commission in 2015, the increase of older Australians taking out reverse mortgages has grown significantly. There are a number of reasons for this which include the fact that retirees prefer to stay in their family home rather than downsize.
Here is a chart which illustrates the rise of reverse mortgages since 2005 which was taken from the 2015
report mention above – “Housing Decisions of Older Australians” :
As we can see from this trend, many more older Australians are releasing the equity in their home to help fund their retirement. So what are the top 5 reasons you should consider a reverse mortgage?
1. Improve Your Retirement Lifestyle
For many retiress who don’t have a significant superannuation payout and rely on the government pension, the amount that they receive is simply not enough to enjoy a comfortable lifestyle in retirement. Many are forced to cut back on their expenses and are hardly able to afford the type of retirement that they should be entitled to after many long years of working hard and raising a family.
A reverse mortgage can be taken as a regular cash payment. This means you can easily top up your pension or superannuation payments and not have to worry about paying for your weekly needs such as groceries and medications and your larger monthly expenses such as gas and electricity bills.
You also have the option of drawing down a lump sum for larger expenses such as annual rates, health insurance, car maintenance and medical bills. And if you drive an older car that requires a lot of maintenance, then a lump sum can help you to purchase a newer model which will cost you much less to run.
Plus there are the little things that you would most likely enjoy now that you have time, such as going out for lunch or taking the grand kids out for a day trip.
2. Consolidate Any Outstanding Debts That You May Have
If you have a credit card or any type of personal loan, you’ll most likely be paying a high interest rate on any outstanding balances plus you have to ensure that you have the available cash to make the repayments when they are due.
With a reverse mortgage you can consolidate your debts, pay them out completely and never have to worry about making regular repayments ever again. This is because a reverse mortgage does not require regular repayments because it will be paid back in full when you eventually sell your home to move into aged care.
You do have the option of making payments if you wish however, but they are not required. Bear in mind though that the interest of a reverse mortgage will compound and be added onto the outstanding amount.
But don’t worry, you won’t be leaving a debt for your children either, as a reverse mortgage is protected by a no negative equity guarantee which means that you can never owe more than what your home is worth.
3. You Can Take That Extended Holiday You’ve Always Wanted
Let’s face it, you’ve probably been saying for years that when you finally retire you’ll take that dream holiday that you’ve never had time to due to work and family commitments. Rather than spend all your hard earned savings or using your credit card to fund your trip of a lifetime, consider taking out a reverse mortgage instead.
This means you won’t have to skimp on some of the little extras that we all like to enjoy while we’re on holidays. And you won’t have to worry about coming home to a large credit card bill because your home equity will be paying for the trip.
4. Pay For Home Improvements To Make Your Retirement More Comfortable
By taking out a reverse mortgage you can easily fund those home improvements that you’ve been wanting to do for so long. Now that you’re retired and spending more time at home, why not consider putting in a new kitchen or extending your outdoor living area so that you can have the family over and entertain in comfort.
Not only will this make your home more comfortable but it will also help to increase it’s value and the increased equity will help to counteract the cost of the reverse mortgage.
5. Pay For Aged Care Or Help The Family
If one of you needs to move into aged care or you have an ageing relative, a reverse mortgage can help to pay for the Refundable Accommodation Deposit (RAD) or the Daily Accommodation Payment (DAP which is required by most aged care facilities.
You can also use some of the funds from a reverse mortgage to help other members of your family. This could be helping with a deposit so that one of your children can finally purchase their first home or help pay for your grand children’s education expenses.
As you can see there are many advantages of taking out a reverse mortgage on your family home once you reach retirement. Remember though, as is the case with any kind of financial borrowing, to seek the advice of a professional first, such as a financial advisor or mortgage broker so that you understand fully what is involved with taking out a reverse mortgage.
Once you know all the ins and outs of reverse mortgages, you’re sure to agree that it’s a great way of accessing some of the equity in your home so that you can afford a more comfortable lifestyle in retirement.
Chart 1: http://www.pc.gov.au/research/…
Image 2: https://pixabay.com/en/depende…