Reverse Mortgage demand
Marguerite Taylor 1 Comment

Reverse Mortgage demand to surge among seniors


According to recent industry data, Australian banks and lenders can expect a surge in demand for Reverse Mortgage products in the years to come. As Australia’s ageing population comes into full bloom, it is predicted asset rich but cash poor ‘baby boomers’ will increasingly turn to home equity release mortgage products to fund a comfortable retirement.

Indeed, the Mortgage and Finance Association of Australia (MFAA) is already asking brokers to get prepared for the next decade. In 2014 alone, there were about 40,000 reverse mortgages worth $3.6 billion according to the Deloitte’s Reverse Mortgage Survey. This was a significant increase from approximately 16,000 reverse mortgages worth $750 million in 2005.

Over the past ten years the Deloitte’s survey results have shown a mostly steady upward trend in the number of Reverse Mortgage on issue in Australia. According to MFAA, we can expect a more dramatic surge in Reverse Mortgages over the coming decade as the volume of application and settlements speeds up to meet growing demand.

Aside from the demographic ‘push factors’ of a large cohort of ageing baby boomers facing a retirement savings shortfall, other ‘pull factors’ will also play a role in further driving the trend upwards. These include falling interest rates, the rising cost of living, and the likelihood of future cuts by government to the real level of aged pension income.

The perception of reverse mortgages by consumers has improved in recent years due to government regulation under the National Consumer Credit Protection Code (NCCP) making Reverse Mortgages the most regulated mortgage in Australia. Indeed regulation and industry bodies such as MFAA and FBAA (Finance Brokers Association of Australia) may have a more dynamic role to play in future; as more sophisticated equity release products are developed further efforts in market education and industry accreditation will likely be required.

Looking at the big picture for the moment, it’s not hard to see why Reverse Mortgages are now becoming more popular with Australian retirees:

  • it can improve cash flow in retirement (no regular repayment is required)
  • seniors can get quick access to cash for medical expenses or aged care
  • no need for minimum income to qualify
  • the borrower remains the registered home owner
  • able to pay bills without stress
  • peace of mind in retirement

If you would like to discuss how a reverse mortgage can help you, please give Reverse Mortgage Finance Solutions a call.

Regards,
Marguerite

Marguerite Taylor No Comments

Part Pensioners Losing Their Entitlements


Most retirees will have seen some warning about the forthcoming amendments to pension entitlements. Legislation was passed by both sides of Parliament last year and will become effective on 1st January 2017

Will you be affected?

Now is the time to reassess your eligibility and see if there is a monetary change to your entitlements. The changes relate to amendments in the assets thresholds, at both the lower end and the maximum allowable for a part pension.

The table below illustrates how a home-owner will be affected.

Current From 1 January 2017
Asset free threshold Pension cut-off threshold Asset free threshold Pension cut-off threshold
Homeowner
Single $209,000 $791,750 $250,000 $547,000
Couple (combined) $296,500 $1,175,000 $375,000 $823,000

For some seniors there will be an increase to their fortnightly payments by an increase to the lower threshold, but significantly there will be more recipients losing entitlements than gaining higher payments.

Seek advice

Don’t wait until January 2017.

Now is the time to assess the impact on your cash flow and decide what steps you will need to take in maintaining your standard of living.

A discussion with your financial adviser or credit adviser will provide alternatives relevant to your circumstances.

One of the options is to release equity in your family home, or other residential property.

When structured correctly, a regular income stream should have no effect on revised pension calculations. However, be sure to speak with an adviser who has knowledge of Centrelink rules and can make appropriate recommendations for your specific needs.

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Use your Home to Stay at Home


The vast number of retirees want to remain at home for the rest of their lives, or until frailty and illness makes that consideration no longer suitable.

The Federal Government acknowledges this as the preferred option of older Australians, but also as a savings to Government’s contribution to the more expensive residential care.

The cost of care continues to escalate greater than most other Budget outlays and a growing ageing population will require an increase in future funding.

But as we have seen in the reforms in residential aged care, there will be a greater contribution by the user to pay a higher percentage of the increased cost of their  home care.

And we should remind ourselves that personal and business taxes already contribute significant monies across all levels of aged care

  • Home Support Program (CHSP)
  • Home Care Program (HCP)
  • Residential Care

Care at Home is available from two sources, the Government subsidised Home Care Program and the private “user pays” industry.

Just like the reform in residential care, the Home Care Program will launch into a program of change on Feb 27th 2017, when the control of monies and the source of supply will be (for the first time) controlled by the end user.

Whilst recipients of care will still need an assessment, once a package has been approved, the user will have the capacity to decide how the money will be spent and which supplier will be the source of those services.

Over the past 12 months we have seen a greater number of packages not meeting the needs of those being assisted. If this demand for extra time/services is to be supplied, it must be paid by the recipient at the full cost of that service.

There are three considerations when staying independently at home and requiring care services

  • “Am I eligible a subsidised program”
  • “Do I pay the “user pays” program”, or combine both and
  • “How do I maintain my home suitable for my care needs”

For the majority of seniors who have spent considerable years in retirement, their self funded income or their savings will have been diluted or exhausted.

There is a cost to be borne, whether it be the government subsidised program or the private service, and users will need to have options. By Feb 2017, service providers will need to know the capacity of the recipient to pay for services, as has been experienced in residential care for the past 2 years.

Similarly to residential care, where residents and their families can access the equity in their home (or investment property/beach house), those living independently at home can use the same security for home purposes.

Releasing equity is generally sought when cash reserves have been diminished, or it is thought other assets should be retained.

The most popular form of Equity Release is a Reverse Mortgage. Previous concerns about the use and conditions of Reverse Mortgages have been addressed by Government with legislation and regulations now in place which provide borrowers more protections than any other home loan.

Over 40,000 older Australians currently use a Reverse Mortgage with the most popular primary purpose being repairs and maintenance to the family home.

Home Modifications

A 10 years study in Victoria has indicated 31% of seniors’ home have a “slip and trip” fault, which may lead to an admission to hospital.

A further 23% of homes had an electrical fault.

Whilst many older Australians live independently in an environment with safety issues, it is important for service providers to be aware of the occupational hazards that their employees may be experiencing.

Paying for Care

The illustration below shows how equity can be utilised in paying for the cost of care and how much equity would be retained. The funding has been calculated for a period of 4 years and the interest rate is averaged at 6.30% for the period.

Security

Forecast

Monthly

Total

   End

Projected

Value

Growth

Funding

Funding

   Debt

Net Equity

 $600,000.00

3.50%

 $600.00

 $28,000.00

 $35,546.00

 $652,968.00

 $1,000,000.00

4.50%

 $1,500.00

 $72,000.00

 $87,708.00

 $1,104,810.00

 $2,000,000.00

5.50%

 $3,000.00

 $144,000.00

 $174,645.00

 $2,303,004.00

If the borrower then proceeds to residential care, the loan can be repaid from the sale of the home or converted to an Aged Care loan.

Providers servicing this sector need to expand their offering and having an advice service from a specialist Credit Advisor in Equity Release will give them a significant advantage in awareness and better service provision.

Paul Dwyer – Aged Care Finance Solutions – provides advice to older Australians and their families for the funding of their aged care costs