Reverse Mortgage Common Loan Purpose & Use
Below are the most common reasons why people release home equity through a reverse mortgage
RECEIVE ADDITIONAL INCOME
You may find it difficult to make ends meet if you are receiving fixed income in the form of a pension or superannuation. Aside from your daily needs and bills, you may also need to find extra money to pay for the big annual bills( rates, insurance and health insurance etc) or for prescription drugs and medical bills.
If you don’t need to make any large purchase, a monthly ‘instalment plan’ is ideal (instead of a lump sum loan). You will save a substantial amount, because you will only be charged with the interest as you receive the money each month.
CONSOLIDATE AND PAY ALL DEBTS
Paying off high-interest debt such as credit cards and personal loans is costly and stressful. But with a reverse mortgage loan, you can consolidate all your debt and pay it off one-time.
This could save you thousands of dollars in interest, and may deliver the peace of mind you’ve been looking for.
How much better would your life be if you were free from worrying about where to get the money to pay your debt each month?
BUY A NEW CAR
Many of our clients purchased a new car for their retirement years. But with many of us living longer, their retirement is lasting longer than their car.
A reverse mortgage offers an ideal option to upgrade the retirement car. The interest rate is often much lower than compared to unsecured car financing offers from banks and traditional lending firms.
FUND AGED CARE
If you are moving into aged care and you have limited ‘liquid funds’, you can apply for an Aged Care loan to pay for your Refundable Accommodation Deposit (RAD) or Daily Accommodation Payment (DAP). Refer our Aged Care loan page.
Our consultants can also help you explore your options for aged care, and provide useful information around other aged care costs that may apply such as the Daily Means-Tested Fee.
Home repairs and renovations can be expensive. And if you are already retired, you may not qualify for a traditional bank loan because of your reduced income.
But with a reverse mortgage loan, you can unlock your home equity for the money required to pay for important repairs and improvements. This could in fact also be a good investment, as upgrading your home can increase its capital value.
HELP THE FAMILY – OR THE GRAND-CHILDREN
Many of our clients have been able to help their children through a difficult time, such as purchasing a home, the grand-children’s education costs or perhaps a family break-up.
A reverse mortgage means that you can help out your family by providing some funds ‘with a warm hand, instead of a cold hand!
PAY FOR VACATION
Rather than spending your pension or savings to pay for your travel and holidays, you can unlock your home equity to fund your trip. By accessing a portion of your home equity through a reverse mortgage loan, you may find it much easier to pay for your dream holiday.
- Many of our senior clients use reverse mortgage to receive additional income, consolidate debt, buy a new car, fund aged care, finance home improvements,, pay for holidays and more.
- While you can use the loan proceeds on anything you want, you must consider longevity risk and should consult with RMFS consultants to choose the right decisions for your long-term best interests.
- Repayment is not required until you sell your home, or all borrowers permanently move out of your home, or all borrowers pass away..
- According to SEQUAL, $85,000 is the average reverse mortgage loan amount.
The Effect of a Reverse Mortgage on Your Pension
Your pension could be affected by how you use the proceeds of a reverse mortgage loan.
If you choose to receive a lump sum to buy an asset, which is assessable by Centrelink, like real estate or a car, its value will count on your pension’s asset test.
If you spend the proceeds on non-assessable assets such as for your holiday or home repair, then it will generally not be assessed under your asset or income test.
Also take note that your pension will usually not be affected if you take the loan in the form of additional income to buy non-assessable assets or for your everyday living expenses.