Nicholas Taylor No Comments

Loan Scenario of the Week

Ms William (63) owns a 2 bedroom apartment in Canberra worth over $600,000. She is a trained and certified accountant. She was retrenched in a corporate restructure, and due to her age she struggled to get other work. Due to her age she was not eligible to receive an old age pension. She has very little super as she spent most of her adult life working in the home raising her children.

Ms Williams was left to survive on the Job Seeker payments, but this was not enough for her to even pay her rates and body corporate fees and she was not living comfortably. She took out a reverse mortgage on her apartment with a regular payment of $1,000.00 a month or $60,000 over 5 years.

The relatively small amount drawn per month means the interest charged is kept to a minimum. According to the ASIC reverse Mortgage calculator after 5 years the likely amount owed at current interest rates (5.09%) will only be $69,445. But the property will have increased in value from $600,000 to $695,000 (3.0%p.a  property growth)

Once she is eligible for the aged pension we will work with her to reassess her situation to see if she needs to continue to access her equity monthly, or whether she can stop her regular payments and only access funds on ad hoc basis as necessary. This will incur a saving for Ms William as she only pays interest on the loan for money she has drawn down.

This loan facility has provided the Ms Williams with a new leash on life and she can, now look for another job or even enjoy an earlier than expected retirement without the financial hardships she was struggling with.

(Names and Suburbs have been changed to protect the identity of our clients.)

Nicholas Taylor No Comments

Gifting without losing Super investment returns – Loan Scenario of the Week

Mr & Mrs Jones (71 &72) own a house on Sydney’s Northern Beaches worth $5 Million as well as a holiday house on the North Coast worth $2.5 Million, both with no mortgages, as well as $5 Million in Superannuation. They still own and run their highly successful business.

Their eldest son is currently looking to purchase a house in Sydney’s North Shore. To help him with this, they have decided to gift $500,000.00 towards this purchase. To do this, the clients have decided to enter into a Reverse Mortgage on their property in the Northern Beaches for this amount, and access part of his inheritance before his parents have died. They want to be able to see their son enjoy their financial legacy.

This money could have been taken out of their Superannuation, however, leaving it in their Super Fund will provide them a far greater return on investment than the interest on a Reverse Mortgage will cost. Due to their strong financial position, they do not receive a pension. Therefore, the gifting of this money will not affect any social security they receive. As the Reverse Mortgage allows repayment, they intend to pay off the Reverse Mortgage within the next 5 years with the income generated from their Superannuation and family business.

They intend to repeat this process again for their younger son when he is able to purchase a property.

(Names and Suburbs have been changed to protect the identity of our clients.)

Marguerite Taylor No Comments

Are you considering a home reversion scheme?

For seniors investigating their options for finance during their retirement, home reversions schemes might come up as a potential option.

A Home Reversion Scheme is not a loan but is more accurately described as a real estate transaction – you are selling a portion of your home. The transaction does not come under the Credit Act and its consumer protections.

Home reversion schemes in Australia are only available in Sydney and Melbourne and even then not in all postcodes.

It is a part sale of a future share of the sale proceeds of the home, at a discounted rate against its future value. The amount the Home Reversion Scheme owner actually receives of the original percentage when the home is sold, varies over time and depends on sale price – sounds complicated? Yes, it is.

An example

A 70yo female seeking to access 10% of her home valued at $500,000 (ie $50,000) will be asked to sell the Scheme a substantially larger portion of the future value of her home.  The percentage actually payable at the time of the subsequent sale of the property is subject to many variables and potential outcomes, although limited to the actual proportion sold, can be hard to forecast.

Reversion schemes offer lump-sum funding only.  Although lump sums are available via a reverse mortgage our experience is that most people (in excess of 90% of our clients) want not only a lump sum but also to set aside funds for future use by way of line of credit and/or a regular income stream for a predetermined period of time.  These options can be set up at the time of the initial application and eliminate the need to reapply to the lender for more funds later.

This flexibility is also important as it relates to overall costs as interest on a reverse mortgage is calculated on the amount drawn. So, if you don’t want all the available funds upfront the overall interest expense will be lessened by taking it as you need.

It is worth noting that Home Reversion Schemes may offer a higher lump sums than the amounts allowed by a Reverse Mortgage lender.

In our opinion, a Reverse Mortgage compared to a Reversion Scheme can provide you with more flexibility and options to meet your long term needs.

Are you interested in finding out your finance options in retirement? Contact us today for a discussion with an expert who can listen to your needs and find the right solutions to fit.