Reverse Mortgages or other options

[westminster]

My parents have a $120k mortgage left on their $550k house. It is a fixed rate one at a hideous 8% I found out last week but will end in Feb.

Come Feb they would like to refinance.

At ages 68 and 70 they are still working part-time but on very low paying jobs (Vicar of Dibley and Father Ted). I'm not sure any bank would like to know them.

I have heard of reverse mortgages and I'm wondering if this might be an option.

What else springs to mind from you guys in the know.

I can guarantor but this might affect my future ability to borrow. I can help them out cash-wise on a per month basis but not really in a lump sum. I give them $500/mth at the moment.

I want to get rid of the mortgage as quickly as possible for them so if they want to retire they can.

 

[Aaron_C]

How will getting a reverse mortgage 'get rid of the mortgage'??

 

[Kristine..]

Hi Westminster

Why do they want to refinance?

Once out of the fixed rate period, their loan will automatically roll to the variable rate available from that lender

Depending on the commencement value of their loan, they may then be on a discounted variable rate

If they refinance to another lender, the best they will be able to hope for is a Basic Home Loan - discounted Standard Variables don't usually kick in unless the loan is at least $150,000 at commencement

If they want to pay the loan off, they have to pay off the principal balance.

It's that simple. Pay more than they have to and the balance will reduce and they will pay off the loan.

If they want to pay off the $120,000 quickly, the best bet is to pay everything they can into the loan or into an associated offset account, then redraw and spend only what they need to.

If they want a structured payment scheme, then they can look at any bank website and use the personal loan calculator but use the applicable variable rate and the calculator will tell them how much they have to pay each week or month to pay out the loan in a certain time.

But is it worth it? They would be living on bread and water just so that they can retire - to live on bread and water!

Isn't it better to manage their money and to pay a comfortable amount from their income and still have money for the occasional coffee or movie ticket?

They can have this discussion with their current lender, about how to best manage their home loan.

It's not all about 'refinancing' - that doesn't necessarily produce a better result, and it can be time consuming, stressful, expensive and essentially unnecessary to refinance just for the sake of it

Reverse mortgages would possibly be an option for them later, but would be no cheaper than what they are paying now

Sometimes, the best solution is to leave well enough alone

and to start paying off the principal as soon as the fixed rate period is completed

Hope this helps
Kristine

 

[westminster]

How will getting a reverse mortgage 'get rid of the mortgage'??

Well in that instance it wouldn't.

Kristine: I think they are with ING so they might get a pleasant surprise when they get to variable.

I need to find out more. I think they assumed when their fixed term was finished they had to refinance but if they can roll straight onto variable then this may well be the best option. Then they keep paying what they have at the 8% rate plus I'll put what I can towards it then it should reduce nicely.

 

[Rolf Latham]

Well in that instance it wouldn't.

Kristine: I think they are with ING so they might get a pleasant surprise when they get to variable.

I need to find out more. I think they assumed when their fixed term was finished they had to refinance but if they can roll straight onto variable then this may well be the best option. Then they keep paying what they have at the 8% rate plus I'll put what I can towards it then it should reduce nicely.

6 % approx


ta
rolf

 

[Liz]

I had a sticky and very desperate situation a few years ago, just under 65 with no income so went for a reverse mortgage. No major bank would look at me. SGE in NSW did. The application $ were high, interest up around 8.5%, and quit fees high as well. Sure, it took the pressure off, but a very costly way to go. I always made sure I paid the interest monthly so as to keep the loan amount the same. Allthough there was no pressure to do so. Which was exactly what I needed at the time. Your parents situation is certainly tough for them, but how desperate? If you can afford to give them $500 per month, what about a Line of Credit where they pay the interest (about $800 per month) and you reduce the capital with your payment? They could possibly quit work and afford that out of a pension. I can understand why you are doing this for your elderly parents so investigate all options on their behalf. And good for you.

 

[westminster]

Thanks Liz very much for sharing your experience with a reverse mortgage.

I actually know very little about them which is why I put the question out there. From the sounds of your experience they may not be what I want for them.

They are by no means desperate but their health is no longer what it was even 5 years ago. I would like them to enjoy their health while they may.

They have paid what extra they could during the fixed term period and have even made some savings and plan to take a trip next year.

I think the answer for them will be to slide over to variable and I see if they will accept my help in paying down the principal. It will be easier for me to pay off principal than to go Guarantor on a new loan.

I have my moments where I feel 'daughter guilt' for knowing I could sell an IP and pay off their debt for them and make their life much easier.

 

[Sheryn]

Westminster

Suggestion...
Why don't they sell their house and rent one of your units? You could give them a slight discount in rent and they could possibly be entitled to rent assistance from Centrelink.

They would have extra money to travel and do what they want.


Cheers
Sheryn

 

[westminster]

Westminster

Suggestion...
Why don't they sell their house and rent one of your units? You could give them a slight discount in rent and they could possibly be entitled to rent assistance from Centrelink.

They would have extra money to travel and do what they want.


Cheers
Sheryn

I would but they don't want to live there and I think the rent is more than their mortgage.

 

[moyjos]

Westminster

Suggestion...
Why don't they sell their house and rent one of your units? You could give them a slight discount in rent and they could possibly be entitled to rent assistance from Centrelink.

They would have extra money to travel and do what they want.


Cheers
Sheryn

Can you buy their house and rent it back to them at a level that balances out gross rent and rent assistance that means they pay the same as now.?

 

[INVSTOR]

I think downsizing is the only answer.