Reverse mortgages as part of your retirement plan

Here’s a scary thought for Australians who are getting a bit closer to their twilight years: Running out of money late in life. 

With interest rate at rock bottom and investment markets continuing to be volatile, many retirees are looking for ways to boost their retirement income to fund everyday expenses. 

To bridge this gap, the government plans to raise awareness of its reverse mortgage product so that more retirees can take advantage of their goose (their house) that lays golden eggs (home equity). Most home-owning retirees don’t realise that they can borrow against their house to top up their retirement funds. 

According to the government’s retirement income review last year, most retirees die with most of their wealth intact and never run down their super or tap equity in their home. 

The Federal Government is trying to encourage 3.8 million Australian retirees to use the equity in their properties which amount to $500 billion, as security for a loan to fund their retirement besides superannuation and pension. 

The existing ‘Pension Loans Scheme’ was broadened in the federal budget to allow home-owner retirees to borrow upfront $12,000 for singles and $18,000 for couples from July 2022. Self-funded retirees can receive up to $2155 a fortnight, or about $1400 for singles. 

Don’t let the name fool you. It isn’t just limited to pensioners but also available to self-funded retirees. The government is consulting on alternative names and raising awareness of the scheme through improved public messaging and branding. 

The scheme works like this:

• Borrowers over the age of 66, including non-pensioners, remain living in their own home and take out a percentage of the value of the house. 
• The scheme offers fortnightly payments worth up to 150% of the old age pension rate. 
• They pay nothing. The money is paid back when they die or move into care. 
• Borrowers are safe. The loans come with a No Negative Equity Guarantee that protects the equity in their home. Borrowers never pay more than the value of the house. 
• And if the home is sold for less than the amount of the principal and interest owed, any difference will be absorbed by the lender. 
• It does not impact government age pension and is non-taxable.

What are the benefits of a Reverse Mortgage?

• Maintain current living arrangements with less financial stress
• Peace of mind - knowing you have access to cash
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