Spending the kids' inheritance: right or wrong?
Kicking their mortgages into reverse seems to be a great way forward for more and more equity-rich, cash-poor retirees who are embracing reverse mortgages in bigger numbers than ever.
Basically, a reverse mortgage is a re-mortgaging product which allows retirees immediate access to equity built up in their home. For many Australians, the residential family home is their main asset but sometimes additional money is needed to renovate, fund an overseas holiday or to simply live on. Short of selling the home and moving into something less expensive, the answer can be a reverse mortgage where you re-mortgage your home to be paid back when you eventually sell, move into care or die.
The popularity of reverse mortgages can suggest a new-found, free-spending attitude by the "oldies" but it is more likely to be the case of parents wanting to fund all aspects of their retirement without bothering their children. According to a recent SEQUAL/Trowbridge Deloitte study, there are currently 31,500 reverse mortgages in Australia, 80-85% of which have been drawn down as a lump sum with the remainder being used as an income stream. Couples are the most common borrowers and although this product has been designed for people aged 60 and upwards, the average age for new borrowers is 73.
As with other, more traditional mortgages, cost remains the biggest consideration. Interest is capitalised every month so the borrower should expect compounding effects on their loan. For example, a $50,000 loan will grow to over $120,000 after 10 years so the borrower needs to carefully evaluate products and use the one that provides the best value over the long term.
There's also the question of family as eventual beneficiaries. A reverse mortgage may lead to a change in the family estate, with the family home no longer part of the estate. If leaving money to the children is important, it can be addressed using a loan that offers a Protected Equity feature where an agreed percentage of the home's value is always left untouched.
Bequeathing debt to the family is also a topic that is frequently brought up. RateCity advises this too can be avoided by only considering a reverse mortgage with a No Negative Equity Guarantee. Most quality lenders offer this feature and it means you or your family will never be put in the nightmare position of owing more than the home is worth.
RateCity is proud to present the first-ever reverse mortgage star ratings report undertaken by leading financial services research firm CANNEX. This report looks at 55 reverse mortgages available in Australia from 17 institutions.
Consumers can download the CANNEX reverse mortgage start ratings report now on Ratecity other loans
How do I compare reverse mortgages?
RateCity is the best website to shop around on for over 2000 home loans and most other financial products. At RateCity, you can use expert comparative data from CANNEX, Australia's leading financial research and ratings firm. CANNEX has analysed and evaluated hundreds of products to award five stars to only the very best. The CANNEX star ratings go much further than just looking at interest rates. They also take into account important features so you can be confident you are getting the best product.
Use our easy search tools to compare reverse mortgages at RateCity.
SEARCH BY: