New loan product for 65+

It appears that the Commonwealth bank is trying to cash in on the retiring baby boomers market with their new loan:

Link: CommBank enters seniors mortgage market

This sort of loan scares me for a few reasons:

1. Borrower has no way of servicing the loan other than by selling the asset.
2. All payments (interest, charges, etc) are capitalized onto the loan balance, thus increasing the debt.
3. Comparitivly high interest rates.

My issue is that the borrower may use the proceeds of the loan to hive well for a few years after 65, but chances are they'll have sent all of the money long before they reach 70.

At some point, seniors often sell their home to fund entry into a retirement home, but those with this loan won't be able to do this, because by capitalizing interest and fees the bank may own most of their home by that time, leaving them with no equity at all...

Another case of live life, work hard, but don't live too long, because you can't afford to.

Hiya

STG have had this type of product on the market for about a year.

Properly and judicoulsy used its a great option.

Understand that the STG product will not allow an LVR greater than 15 % for exactly the reasons you have mentioned.

Ta

rolf

Reverse Mortgage

Australian seniors have always had this thing about passing assets on to the next generation. So it will require a value shift in their thinking.

Contrary to popular myth most seniors will continue living in their 'original' family home until they are forced out by circumstance. This has been encouraged by Govts because it is ultimately cheaper for the taxpayer.

Increasing application of the 'User Pays' principle and continuing limitation on increases for the Age Pension mean that demand for reverse mortgages will probably grow.

Health imperatives can burn up big amounts. Some need it for that.

Some may need it for house maintenance, necessary white goods and car replacement.

Many do not have an extended family that can help. Not fashionable for couples to take in the 'oldies' either.

It will be a big problem for the next generation - no inheritance.

Money - Whats it for anyway ?

Hi Jean

Bit off topic but............

In my experience, the most used areas for this type of product are:

1. A "Living" Inhertitance - giving a house deposit for children for example, and limiting guarantees in the process.

2. Some form or addition or renovation to a house or a new motor car

3. A trip back to the "old" country.

Of those the most "worthy" would have to be the last.

Imagine .......................................... a couple of mediterranean background that came here in the 60s and havent been back since. Whats that 20 000 mortgage worth ?

At todays rates - about 30 bucks a week.

Bugger the inheritance, go and see your friends and family before the opportunity is taken from you I say.

I find it heartbreaking when people sit in an underused home worth 750 000 to hand it on to the next generation and cant make use of the equity because of emotional blocks.

Its at these times that as a professional sales person you have the power to facilitate people to see things differently and to perhaps enrich their lives using their own resources.

When you succeed the old folk thank you as if you were tight family. Conversly when you fail you feel really poorly because you have let them down because you know from your larger perspective that they could and should (in most circumstances) make that trip.

Now who said brokers sell money ?????????

ta

rolf

Well put Rolf,

By all means try to assist your kids.
Of course be careful in accessing such funds.
But don't forget yourself. That generation already worked longer, harder and for less than ourselves.

Enjoy some of that equity.