why are Reverse Mortgages offerred to over 60's only
- Thread starter myla
- Start date
because the mortgages don't have to be paid back (compounding interest or principal) and just keeps accumulating. the banks are taking dibs that the customers would fall off the twig before they reached the end of their reverse mortgage - for if they borrowed to the max before dying then they would have no option but the sell the house from under the old biddie to recoup their money.
a reverse mortgage for us youngies is called a line of credit - again you can compound the interest legally, but you enter this loc agreement with the bank on the provisor that it will be repaid.
i am sure one of the accountants can explain it better than i.
a reverse mortgage for us youngies is called a line of credit - again you can compound the interest legally, but you enter this loc agreement with the bank on the provisor that it will be repaid.
i am sure one of the accountants can explain it better than i.
Myla,
in your case there may be other products available such as a 70% NoDoc loan.
in your case there may be other products available such as a 70% NoDoc loan.
hello,
a reverse mortgage there is no "ongoing" costs to the individual ie. interest is all capitilised
with LOC etc I have to pay at least the interest per annum i believe
so the equity is only allowing me to borrow money (satisfying the lender) with interest payable as normal
how to release equity then?
thankyou
myla
a reverse mortgage there is no "ongoing" costs to the individual ie. interest is all capitilised
with LOC etc I have to pay at least the interest per annum i believe
so the equity is only allowing me to borrow money (satisfying the lender) with interest payable as normal
how to release equity then?
thankyou
myla
My understanding is that usually a reverse mortgage has a low LVR (<50%). If you already own a property with that much spare LVR, why not just do a normal refinancing? A retiree can't borrow 90% LVR for obvious reasons (the capitalised interest over time would take LVR >100% in no time).
Do you really want a loan that limits you to about 30% LVR even if you don't pay interest? You might as well get a 70% no doc, and only use 50% of it for new properties and keep 20% to pay interest.
Alex
Myla do you really think there is no ongoing cost to the individual with a reverse mortgage? Think again it costs them the equity in their property unless capital growth out ways it.
http://www.choice.com.au/viewArticle.aspx?id=105198&catId=100296&tid=100008&p=1&title=Reverse+mortgages+warning
http://www.choice.com.au/viewArticle.aspx?id=105198&catId=100296&tid=100008&p=1&title=Reverse+mortgages+warning
nope - this can be capitalised for as long as you want too, as long as you stay under the line of credit limit. a loc is not overly different from a reverse mortgage - more just in the name.
i don't know the legalities of a reverse mortgage (having never done one) but i am sure there is a clause in there from the bank regarding limits and property ownership.
Hi Myla
Reverse Mortgage - mortgage loans where the balance gets bigger over time instead of smaller, are a tightly regulated specialist lending product:
http://www.asic.gov.au/fido/fido.nsf/byheadline/Reverse+mortgages?openDocument
In theory, a credit facility secured by mortgage over residential property can imitate a true reverse mortgage product, but it will not have the same safeguards as a regulated product.
Reverse mortgages usually have an equity buffer built in to the loan. The equity buffer is scaled according to the age of the borrower, and has a capped limit, usually guaranteeing that at the end of the day the amount outstanding on the loan will not exceed 80% of the then value of the property.
This buffer is to provide peace of mind to borrowers that there will be some value left in their estate to pay necessary funeral expenses, selling costs of the property and legal and probate expense.
Many older Australians who own their own homes are living below the Henderson Poverty Line. After a life time of work, they cannot afford to live and maintain their properties.
The reverse mortgage industry has emerged in response to a real and growing need in the community: How to provide options for older people to remain in their homes for as long as possible when they are asset rich and cash poor.
I looked at a property in Melbourne recently - a 'renovator's opportunity', a deceased estate. It was enough to make you cry!
The old woman had been living in this near derelict property, apparently in one room, the bathroom was nearly falling through the floor, the stink of cat strike throughout the house, the whole building in a terrible state. Yet now that she was dead, her children stood to inherit a considerable windfall, as land value alone was well over $200,000.
This is not to say that her children were selfish, they probably had nor more money than she had, but many older people will not spend a penny as they wish to be able to pay for their own funeral, and 'leave a little' to their children.
Reverse mortgages provide the opportunity - for those who want them - to be able to pay for necessary repairs and a basic quality of life in their final years.
Advertisements may play on the 'holiday, renovation, grandchild's education' emotions, but the stark reality is that even simple things like getting a heater fixed is beyond someone who has lived on just the pension for even a few years.
So reverse mortgages are a specialist product designed to fill a need and with complex lending rules and performance guarantees.
If you are on a fixed or limited income but have equity in your own home this puts you between two stools.
Taking out a line of credit will eat away at your equity even though, in theory, the property will increase in value over time, thus replenishing the equity drawn out in cash.
However, the compounding nature of interest may mean that a simple interest of, say, 8% becomes 8.64% in the second year, 9.33% in the third year and so on. It is easy for the loan to get out of control.
Obviously, if a credit facility is arranged for, say, $50,000 and you want to only draw $5,000 each year to top up other income, you have not arranged 10 years drawings, due to the nature of the interest compounding on the balance of the loan.
If you were wanting to do this for a specific period of time and for a particular purpose eg returning to work when the youngest child starts work, this may be a legitimate tactic. If you have a couple of million dollars of equity then living off the equity is less of a problem than if you have $100,000 worth of equity, but the debt is still growing and once the credit limit is reached then servicing the debt will be required - or arranging further credit, and so the debt continues to grow.
You may be interested to know that reverse mortgages are only for the principal place of residence, they are there to serve a need. If you are an investor, and want to consume the equity in an investment property and then sell it when the limit is reached (if it is not possible to service the debt) then that is a different tactic altogether.
You have raised an interesting question, but as with all complex situations there is no easy answer.
If you are genuinely seeking to access the equity in your own home you may wish to seek professional advice including that of an experienced broker before you make any decision. Not all lenders offer reverse mortgages, some lenders offer only reverse mortgage, but most lenders will be able to offer some sort of appropriate product depending on your particular circumstances.
Cheers
Kristine
You would need to know more to that story as to whether a reverse mortgage would have really helped.
My mother whom went through the depression has oodles in the bank and still cannot spend it. She has purchased second hand glasses refuses to purchase a hearing aid. It took us years and a couple of heart attacks to get her to buy an air conditioner and then still will only turn the fan on occassionally.
Whom is to say the little old lady with the cat did not have plenty of money sitting in a treasure trest (bank account).
However if your interpretation of her situation was correct it could have certainly provided a better quality of life in the end
My mother whom went through the depression has oodles in the bank and still cannot spend it. She has purchased second hand glasses refuses to purchase a hearing aid. It took us years and a couple of heart attacks to get her to buy an air conditioner and then still will only turn the fan on occassionally.
Whom is to say the little old lady with the cat did not have plenty of money sitting in a treasure trest (bank account).
However if your interpretation of her situation was correct it could have certainly provided a better quality of life in the end
hello,
my situation:
mortgage on unit in St Kilda $125k (PPOR)
value of unit in St Kilda $375k
my income 50k
want to buy unit in Chelsea around 210 - 230k and live in this
can rent St Kilda out to cover all costs, mortgage, BC, rates etc
have 40k for new unit, but all figures are looking at around $350/week on loan repayments and then rates, insurance, bc etc on top
so would like to reduce loan amount for the unit purchase to bring weekly payments down
so releasing equity
thankyou
myla
my situation:
mortgage on unit in St Kilda $125k (PPOR)
value of unit in St Kilda $375k
my income 50k
want to buy unit in Chelsea around 210 - 230k and live in this
can rent St Kilda out to cover all costs, mortgage, BC, rates etc
have 40k for new unit, but all figures are looking at around $350/week on loan repayments and then rates, insurance, bc etc on top
so would like to reduce loan amount for the unit purchase to bring weekly payments down
so releasing equity
thankyou
myla
Hi Myla
Any money you borrow will require servicing the debt.
Leaving aside the tax implications, it doesn't matter where the loan is secured, 'releasing equity' simply means borrowing against the equitable ownership of an asset, in this case, the difference between market value and outstanding debt on a property.
The only way you can minimise your service shortfall is to borrow less.
You can certainly borrow against St Kilda to buy Chelsea. Structuring your borrowings this way would reduce your purchase and finance expense in that you could keep the loan amounts below the magic 80%LVR, thus neither loan would require mortgage insurance.
Your situation is much more simple than you may realise. No need to make life complicated!
Hope you enjoy Chelsea - buying in Chelsea during 2006 has started a whole new chapter for me. We don't live there yet - probably won't for a few years - but buying there has been the realisation of a dream!
Good luck
Kristine
Any money you borrow will require servicing the debt.
Leaving aside the tax implications, it doesn't matter where the loan is secured, 'releasing equity' simply means borrowing against the equitable ownership of an asset, in this case, the difference between market value and outstanding debt on a property.
The only way you can minimise your service shortfall is to borrow less.
You can certainly borrow against St Kilda to buy Chelsea. Structuring your borrowings this way would reduce your purchase and finance expense in that you could keep the loan amounts below the magic 80%LVR, thus neither loan would require mortgage insurance.
Your situation is much more simple than you may realise. No need to make life complicated!
Hope you enjoy Chelsea - buying in Chelsea during 2006 has started a whole new chapter for me. We don't live there yet - probably won't for a few years - but buying there has been the realisation of a dream!
Good luck
Kristine
hello,
thanks for the replies
if I get a LOC against PPOR that will then change what I borrow for new purchase so the equation is still the same I imagine, total borrowings at X%
sure a reverse mortgage the interest is capitilised but there is no ongoing cost
the reverse mortgage gives me money now, sure a small amount which could be used to make a more "comfortable" situation
releasing equity
thankyou
myla
thanks for the replies
if I get a LOC against PPOR that will then change what I borrow for new purchase so the equation is still the same I imagine, total borrowings at X%
sure a reverse mortgage the interest is capitilised but there is no ongoing cost
the reverse mortgage gives me money now, sure a small amount which could be used to make a more "comfortable" situation
releasing equity
thankyou
myla
