Marguerite Taylor No Comments

More people are retiring with high mortgage debts.

The number of mature age Australians carrying mortgage debt into retirement is soaring.

And on average each mature age Australian with a mortgage debt owes much more relative to their income than 25 years ago.

Microdata from the Bureau of Statistics survey of income and housing shows an increase in the proportion of homeowners owing money on mortgages across every home-owning age group between 1990 and 2015. The sharpest increase is among homeowners approaching retirement.

More mortgaged for longer

For home owners aged 55 to 64 years, the proportion owing money on mortgages has tripled from 14% to 47%.

Among home owners aged 45 to 54 years, it has doubled.

Source: Authors’ own calculations from the Surveys of Income and Housing

Meanwhile, the average mortgage debt-to-income ratio among those with mortgages has pretty much doubled across every home-owning age group.

In the 45-54 age group the mortgage debt-to-income ratio has blown out from 82% to 169%.

For those aged 55-64 it has blown out from 72% to 132%.

Source: Authors’ own calculations from the Surveys of Income and Housing

Three reasons why

The soaring rates of mortgage indebtedness among older Australians have been driven by three distinct factors.

First, property prices have surged ahead of incomes.

Since 1970 the national dwelling price to income ratio has doubled.

Prices and wages in 1970 are assigned an index of 100. Sources: Treasury, ABS, Committee for Economic Development of Australia

Despite weaker property prices, the ratio remains historically high. This means households have to borrow more to buy a home. It also delays the transition into home ownership, potentially shortening the the remaining working life available to repay the loan.

Second, today’s home owners frequently use flexible mortgage products to draw down on their housing equity as needed for other purposes. During the first decade of this century, one in five home owners aged 45-64 years increased their mortgage debt even though they did not move house.

Third, older home owners appear to be taking on bigger mortgages or delaying paying them off in the knowledge that they can work longer than their parents did, or draw down their superannuation account balances.

Super could be changing our behaviour

For mortgage holders aged 55-64 years, there is evidence to suggest that larger debts prolong working lives.

In 2017 around 29% of lump sum superannuation withdrawals were used to pay down mortgages or purchase new homes or pay for home improvements, up from 25% four years earlier.

In the Netherlands, where a mandatory occupational pension scheme along the lines of Australia’s super scheme has been in place for much longer, over one-half of home owners aged 65 and over are still paying off mortgages.

The base is the total number of uses of lump sums rather than the number of people taking lump sums. ABS 6238.0 Retirement and Retirement Intentions

The implications are huge

Internationally, studies have found that indebtedness adds to psychological distress. The impacts on wellbeing are more profound for older debtors, without the ability to recover from financial shocks.

Debt-free home ownership in old age used to be known as the fourth pillar of the retirement incomes system because of its role in reducing poverty in old age. It allowed the Australian government to set the age pension at relatively low levels.

Growing indebtedness will increase after-housing-cost poverty among older Australians and create pressure to boost the age pension.

Mortgage debt burdens late in working life will also expose home owners to unwelcome risks, as health or employment shocks can ruin plans to pay off their mortgages.

During the first decade of this century, around half a million Australians aged 50 years and over lost their homes.

Taxpayers will be under pressure to help

Those losing home ownership are often forced to rely on rental housing assistance. Moreover, as older tenants they are unlikely to ever leave housing assistance. This will put pressure on the government to boost spending on housing assistance, which is likely to further boost demand for housing assistance.

Super and government housing assistance could become the safety nets that allow retirees to escape their mortgages.

It wasn’t the intended purpose of superannuation, and wasn’t the intended purpose of housing assistance. It is a development that ought to be front and centre of the inquiry into the retirement incomes system announced by Treasurer Josh Frydenberg.

It is a change we’ll have to come to grips with.

Original article can be found here.

Marguerite Taylor No Comments

How Reverse Mortgage Helps Fund Aged Care at Home

Many Australian seniors would prefer to stay at home during retirement instead of moving into an aged care facility. If you’re eligible for a Home Care Package but you just need some help with your added expenses or other necessities to ensure comfortable living, a home equity loan might be able to provide a valuable assistance.

Are You Eligible for a Home Care Package?

In general, the Australian government will assess your eligibility for a home care package. And once you are assessed as eligible, you will receive a letter of approval from My Aged Care, which contains the level of home care package that you will receive. You will also be placed in a national priority queue for home care packages. Someone will also keep in touch with you to inform you when a suitable package is already available.

While waiting for your home care package, you can begin searching for accredited home care providers in your area and work on the numbers. Remember, not all providers are the same, so you must meet them to level your expectations. This is also a good chance to see the available services that they can offer.

[Related Post: Use your Home to Stay at Home]

Your Home Care Package May Not Be Enough

Once a home care package becomes available, My Aged Care will inform you about the details of the services. There’s a possibility that the Home Care Package assigned to you may not be enough for your retirement.

Remember, the government subsidises aged care services in Australia. And depending on the results of your assets test, you might be expected to contribute towards the cost of your home care. The cost that you will have to shoulder will depend on the package or funding program.

Meanwhile, your provider may also ask you to contribute towards the cost of the services you receive. Hence, if you have been assessed as capable of contributing to the cost of your services, you should do so before receiving the home care services.

Your home care service provider may ask you to pay the following:

  • An income-tested care fee (depending on your retirement income)
  • Basic Daily Fee of up to 17.5% of your age pension

While commendable, the Home Care Package may not be enough especially for seniors with reduced income. Many seniors who have already stopped working and don’t have enough fund on their super may find it difficult to make ends meet. Plus, the cost of retirement living can be high as you have to pay for medical expenses and home renovations to allow easy and comfortable living.

Luckily, there are alternative financial solutions available for seniors who are assets rich but cash poor. One of these alternatives is the home equity loan also known as reverse mortgage loan.

What is a Reverse Mortgage and How It Can Help Seniors?

Many Australian seniors have worked hard for years and paid off their mortgage, which comprises much of their wealth.

[Related Post: EXPLAINER VIDEO – Australian Reverse Mortgages]

Through a reverse mortgage loan, a senior can unlock that wealth – not all of it – but a portion can be used to finance retirement needs including paying off counterpart for home care services. However, seniors can use the loan proceeds in anything they want like paying off their debt, renovating home, or even paying for a holiday.

One great feature of a reverse mortgage is that you don’t have to move out from your home, which makes it a great match for supplementing a home care package.

Consult A Reverse Mortgage Broker Today

Retirement is a crucial phase in life, so it is vital that you consult with an reverse mortgage broker about your finances. For face-to-face financial consultation, or if you want to know more about how you can use a reverse mortgage loan, you can call Reverse Mortgage Finance Solutions at 1800 001 020. You can schedule an appointment with our loan experts who will go the extra mile by visiting you at your home.



Paul Dwyer No Comments

The consumer’s perspective

We tested consumer perspectives with a group of over a thousand people aged 50 and over. These consumers seem somewhat optimistic about the lifestyles that await them in retirement despite our research findings on the scale of under-funded pensions, including 70% of them expecting to travel in retirement, 30% of them seeking to help their children financially and 22% of them planning to pay off their mortgage.

Overall their expectations of required retirement income was realistic, being typically two thirds of salary. However, three quarters had either not done any planning for retirement or not refreshed their plans for a number of years. Despite this, half were confident that they would have sufficient income in retirement, with 70% expecting their non-pension saving to provide at least a fifth of their income, with half expecting to use the value in their home to boost their retirement income.

For those who did expect an income shortfall in retirement, this was an average of £11,400 per annum. Aside from continuing to work, down-sizing was seen as the most likely option and the average respondent thought that just over £100k could be raised from their home. There was an expectation amongst some that they would receive much more income than current annuities or drawdown can facilitate. This re-enforces our observation that for many people, down-sizing alone will not meet the income shortfall and additional saving is required.

Of note was the group’s hostility towards using equity release. Only 14 people (out of the thousand) were planning to use equity release as a means of boosting retirement income. For those that subsequently realised that they may have an income shortfall to address, only 6% would use equity release. Whilst 80% were aware of equity release and two thirds claimed to understand it, collectively they only managed to answer on average 3 out of 13 true or false questions correctly on equity release, indicating a significant lack of understanding. Whilst we are not advocating equity release as a solution, it may be appropriate for people that need to access capital from their home and for whom down-sizing is not the best option. It is therefore important for these people that their lack of understanding of how equity release works be addressed.


Paul Dwyer


TISA (2016) Can housing wealth save the day? 752 Durham, North East England Preston Farm Business Park