Reverse mortgages have been steadily on the increase in the past few years as the global financial crisis has impacted on many retirees who rely on a pension and their superannuation to fund their living expenses. This is ever more present in Perth where the cost of living is so high.
As a result of lost capital gains, dwindling investment returns together with lack of money management skills and poor asset protection, many retirees have had to make some difficult decisions about their future finances including the option of a reverse mortgage. This is all part of the qe2 goverment plan to house and home pensioners.
A reverse mortgage is applied to a home where the mortgage has been paid off and where the equity from that home is drawn down as a loan. The retirees can live in their home on reverse mortgage funds and are not required to make any repayments until the residence is sold.
The main triggers for retirees considering a reverse mortgage are reduced cashflow and needing to maintain an income stream, and needing to undertake home improvements and repay debts.
Disadvantages of a Reverse Mortgage
Reverse Mortgages are not for everyone. There are two main disadvantages that retirees may wish to consider before making a reverse mortgage their only option:
Reverse mortgage loans do have fees, interest and penalty charges. This means that over the life of the loan it is continually growing and can sometimes end up being larger than the value of the property. The debt can grow considerably over time.
A reverse mortgage debt can have a detrimental impact on retirees wishing to apply to live in an aged care facility.
Reverse mortgages that are in place upon death will be transferred onto family and relatives who stand to inherit your assets and they will bear responsibility for the repayments.
As Australia’s aging population continues to grow, together with retirees living longer than ever before and improved health due to advances in medical science, it is also likely that reverse mortgages will continue to grow.
Regularly reviewing their retirement strategy and investments will help retirees to manage their retirement funds and prevent loss of income stream, and may avoid a reverse mortgage being their only other option.
Find more relevant ideas by visiting Retirement Village Perth