Given the country’s ageing population, more Australians are looking for alternative ways to fund their retirement
There's no two ways about it – Australia has an ageing population. Given the changing norms around the retirement age, and the legislation affecting pensions, many Australians are understandably wondering how they will be able to effectively finance their retirement. Additionally, the number of retirees who have existing debt when they retire or have accumulated debt since entering retirement is continuing to grow.
As a result of these and other factors, reverse mortgages are emerging as a popular choice for retirees to more effectively fund their golden years.
“A reverse mortgage can be used for any worthwhile purpose,” explains Jeff Murray, head of distribution at Heartland Seniors Finance. “Many of our customers use the loan to fund home repairs or improvements, repay debt, travel to visit family, pay for medical procedures, upgrade to a more reliable car, assist with in-home care, or for other uses that will make life easier and more comfortable.”
Fundamentally, says Murray, a Heartland reverse mortgage is designed to help clients live a better retirement. In practical terms, it’s just like a normal home loan, except that it has been designed to accommodate the particular needs of seniors.
Heartland provides three flexible options for clients to access the equity in their homes when required, which can be used in combination:
- Lump Sum: This is the initial advance made to the client on settlement. In addition, the client may also have a Regular Advance or Cash Reserve facility made available on settlement.
- Regular Advances: Heartland’s Regular Advance option enables clients to supplement their retirement income with regular instalments. This can be done monthly, quarterly or annually over five or 10 years and helps many customers live a better retirement.
- Cash Reserve: Heartland’s Cash Reserve facility enables clients to put aside some funds for future needs, whether for renovations, travel or healthcare, or to take the stress out of bills or unexpected expenses.
“The options allow people aged 60 and over to release equity in their home to fund a more comfortable and independent retirement,” says Murray. “No regular repayments are required, though voluntary repayments can be made at any time. Interest is added monthly, which is repaid from the future sale of the property.”
Importantly, Murray stresses, clients continue to own 100% of their own home. Reverse mortgages are arguably the most heavily regulated consumer finance product in Australia. By default, reverse mortgages offer considerable protection to customers (provided you meet your obligations under the loan), including:
- Lifetime occupancy- the client’s home will remain the place they live for as long as they choose.
- No negative equity guarantee- the amount required to repay the loan will never exceed the net sale proceeds of the property.
- Loan repayment- there is no requirement to make any loan repayment until the end of the loan (with the flexibility to pay in part or in full at any time).
Independent legal advice is required before undergoing the process of taking out a reverse mortgage. Additionally, Heartland is aware that people’s circumstances can change rapidly, so it offers a 30-day cooling off after settlement, allowing clients to cancel their reverse mortgage and repay their loan with no additional cost except a small valuation fee.
“Heartland will refund the Settlement Fee and interest. You will only need to pay the $350 valuation fee,” says Murray. “The only other costs you may incur are any government charges, and your independent legal advice on the loan agreement.”
Murray is also keen to point out that brokers should be discussing these factors with clients before referring them to a provider like Heartland.
“The questions brokers should discuss with potential clients really fall into three categories – loan considerations, loan obligations and future needs,” explains Murray. “The main loan consideration is the personal impact of taking out a reverse mortgage, both now and in the future. Loan obligations are centred around the borrower’s awareness of their responsibilities associated with the loan.”
Last but not least, notes Murray, discussions about future requirements should cover the potential funding needs the customer might have looking ahead.
“Do they think they’ll need other loans or further finance into the future, and how might taking out a reverse mortgage affect those goals?”
Murray says Heartland has put in place a variety of other features and protections to help ensure customers are comfortable with their decision.
“Heartland understands that each and every customer places their trust in us when we provide them with finance, and we take this duty of care seriously,” says Murray. “We also ensure that customers are making informed decisions and are encouraged to speak to family and advisers about finances.”