As a retired Aussie, you might be considering a reverse mortgage. A reverse mortgage can be used to meet expenses after retirement by tapping into the equity in your home.
For some retirees, a reverse mortgage can help to meet medical expenses, fund long-term care or ensure they can maintain a good standard of living. However, it also has its downsides. For example, if you borrow too much at the beginning of your retirement, the double impact of compound interest and fluctuating property prices could result in insufficient equity later on or none at all.
So if you’re looking for some extra cash in retirement, here are some alternatives to reverse mortgage that you could consider.
1. Sell your house and downsize
One of the most practical ways to get a sizable amount after retirement is to sell your home and move into a smaller, more affordable space. Without a doubt, it’s hard to let go of your home, but this option results in some retirees living mortgage-free lives.
Instead of taking on a new mortgage, some consider refinancing any existing loans to lower monthly payments. This can free up some cash. Refinancing your loan instead of getting a reverse mortgage gives you the advantage of keeping your home and its equity as an asset for you and your family. As a retiree, there may be fewer home loan options available to you for refinancing, so compare interest rates and consider contacting a mortgage broker.
3. Centrelink's Pension Loan Scheme
An initiative to support retirees, Centrelink’s Pension Loan Scheme allows approved people eligible for the pension to access capital tied up in their assets.
The Pension Loans Scheme is paid in regular fortnightly instalments for approved applicants. The total amount you can borrow under this scheme is dependent on the value of your property, the equity you wish to keep in it, and your age.
The benefit of volunteering for the Pension Loans Scheme is that the payments you receive aren’t subject to income tax. Moreover, you don’t have to offer all your real estate assets to get the loan, if you meet other conditions.
4. Open your house to a tenant or holidaymaker
Another option to avoid borrowing altogether is by renting out a part of your home on a monthly basis. This can help ensure you have sufficient funds to maintain your lifestyle without having to sell or mortgage your house.
If the thought of a full-time tenant is not appealing, you could consider opening your house to people on holidays.
Whichever option you choose, it’s important to consider which options may best suit your financial situation. Consider seeking financial advice or contacting a mortgage broker.