For seniors investigating their options for finance during their retirement, home reversions schemes might come up as a potential option.
As a product, a home version scheme is only available in Sydney and Melbourne through Homesafe Solutions in partnership with Bendigo Bank. It basically is a part sale of the home, at a discounted rate against its future value – sounds complicated? Yes, it is.
Let’s use an example
If your home is valued at $500,000 and you access 10% ($50,000), in 10 years you would repay around 18-19% of its value at that time.
It is not a loan but regarded as a real estate transaction and therefore does not come under the Credit Act and its consumer protections.
As it is a lump sum, it is slightly more expensive than a reverse mortgage when reverse mortgages have an 8.5% interest rate – currently 6.5%.
As it is a lump sum only, it misses the advantages of the traditional reverse in that an income stream and Line of Credit are not available.
With a reverse mortgage, interest is calculated only on the drawn amount. As a Home Reversion Scheme is a lump sum only, the cost of providing those funds has a higher end debt to the consumer.
Its only real advantage is for those clients wanting a higher lump sums than the amounts allowed by either the Reverse Mortgage lenders or the Regulator (ASIC).
In comparison, a reverse mortgage can provide you with a more cost effective lending structure, greater 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.