A recent report by Mission Australia showed around 22,000 people over 55 years of age sought homelessness assistance services between 2015 and 2016 – an increase of 15% from the year before.
Some pensioners experiencing financial strain choose to seek out alternative financial support options including reverse mortgages, pension loan schemes and home-equity loans.
In fact, the recipient of our 2018 Provider of the Year – Reverse Mortgages Award, Heartland Seniors Finance reported record levels of enquiries over the last year.
A reverse mortgage is a product for people aged over 60 that enables them to use equity in the home as security for a loan while retaining ownership. The borrower does not need to make repayments while residing in the property, but the loan will need to be repaid with interest when the property is sold or the titled person passes away.
Heartland Seniors Finance CEO Andrew Ford attributed the increased interest in reverse mortgages to greater awareness of the financing option, increasing costs of living, an ageing population, sustained lower interest rates and increasing indebtedness, albeit with greater equity.
We spoke with Mr Ford to gain further insight into the reverse mortgages market.
Q&A with Heartland Seniors Finance CEO Andrew Ford
What type of borrower is best suited to a reverse mortgage?
A reverse mortgage can help anyone from a 60-year-old who wants to remove the worry of repayments on their regular mortgage to a centurion who needs to enter aged care. Personally, I think borrowers in their late sixties to mid-seventies are particularly well suited to this product as they are typically young enough to enjoy the benefits of a reverse mortgage, such as travel, home renovations or to spoil the grandkids, and will likely have enough equity in their property to retain future options.
What age group most commonly enquires about these products? Do you receive enquiries from people besides retirees?
Our average customer is a couple in their late sixties to mid-seventies, although we can assist people from sixty years of age. We have noticed more enquiries coming from the children of prospective customers, who want to see if a reverse mortgage can help their parents. We also receive enquiries from people who haven’t retired, but are researching and planning their retirement options. This is why Heartland Seniors Finance has invested heavily in education.
If you’ve retired and have substantial equity in your property and a small residual mortgage, what’s the advantage and disadvantage to paying it off with a reverse mortgage?
By using a reverse mortgage to repay an existing mortgage you can eliminate the need for regular repayments, which can be difficult to service from the aged pension. Without repayments, our customers can live a much more comfortable retirement, enjoying peace of mind.
A disadvantage would be the interest rate on a reverse mortgage is typically higher than a regular mortgage, because of the protection it offers, such as lifetime occupancy and that there are no payments required.
What are the benefits of a retiree taking out a reverse mortgage as opposed to downsizing to unleash more equity for retirement?
Downsizing can be a great option, particularly if the home is challenging to maintain, too large for your needs and its sale will release enough equity to enable you to downsize to a property that meets you needs and desires. However, for many seniors their home is what connects them to their community and with family and friends. It is full of memories and provides security and familiarity. A reverse mortgage can enable them to stay in their home and free up some money to provide a more comfortable retirement. A reverse mortgage also provides great flexibility – you can still downsize when the time is right.
What’s your top tip for anyone considering a reverse mortgage?
Speak to Heartland! Seriously, the most important thing to do is research so you can make an informed decision. Also talk to your family, talk to friends and seek advice. Heartland has a number of tools available, including videos, articles and calculators which can assist you with your decision.