Budget to provide Aussie pensioners with reverse mortgages

Budget to provide Aussie pensioners with reverse mortgages

Elderly Australians were arguably among the “winners” of the 2018 Federal Budget, with the updated Pension Loans Scheme letting retirees take out a government-issued reverse mortgage on their property and enjoy improved access to retirement income.

In the past, the Pension Loans Scheme was only available to part pensioners and self-funded retirees, who could use the scheme to bring their incomes up to 100% of the maximum fortnightly pension amount.

However, following the 2018 federal budget, the scheme will now be open to all age pensioners who own property in Australia, without affecting their pension entitlements, and allow them to enjoy up to 150% of the maximum fortnightly pension amount.

According to the federal budget papers:

“Full-rate pensioners will be able to support their income by up to $11,799 (singles) or $17,787 (couples) each year by unlocking the equity in their home.”

The interest rate currently charged by the government on the Pension Loans Scheme, 5.25%, is significantly lower than some of the rates on reverse mortgages currently available from major Australian banks, which can be over 6.3%.

It’s important to compare the available options before taking out any reverse mortgage. Consider contacting a financial adviser if you’re not certain if a reverse mortgage will be the best option for your finances.

Other benefits for seniors this budget include:

  • Pension Work Bonus – increasing the amount that pensioners can earn without reducing their fortnightly benefit by $1300 to $7800 a year, and extending this benefit to self-employed individuals.
  • Skills and Training Incentive – provides up to $2000 to help mature age workers wanting to return to work or transition to new industries to update their skills.
  • Restart wage subsidy – $10,000 to employers to support workers over 50 as they start a new career.
  • More Choices for a Longer Life Package – about 14,000 more people will get home care packages to stay at home rather than going into aged care facilities.
  • Aged care system reform $82.5 million for mental health services in residential aged care.
  • Power of attorney changes – to help combat elder financial abuse

Even Australians who have not yet reached their retirement saw benefits from the federal budget, including the following changes to superannuation:

  • The Australian Tax Office (ATO) is set to start proactively finding individuals’ lost super and having it sent to their active superannuation accounts, ensuring it doesn’t get eaten up in ongoing fees.
  • Exit fees on super accounts are to be banned, making changing funds more affordable.
  • Superannuation funds will be stopped from forcing young people under 25 or with low balances to pay for life insurance policies they have not asked for or do not need.

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What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

Why does Westpac charge an early termination fee for home loans?

The Westpac home loan early termination fee or break cost is applicable if you have a fixed rate home loan and repay part of or the whole outstanding amount before the fixed period ends. If you’re switching between products before the fixed period ends, you’ll pay a switching break cost and an administrative fee. 

The Westpac home loan early termination fee may not apply if you repay an amount below the prepayment threshold. The prepayment threshold is the amount Westpac allows you to repay during the fixed period outside your regular repayments.

Westpac charges this fee because when you take out a home loan, the bank borrows the funds with wholesale rates available to banks and lenders. Westpac will then work out your interest rate based on you making regular repayments for a fixed period. If you repay before this period ends, the lender may incur a loss if there is any change in the wholesale rate of interest.

What do people do with a Macquarie Bank reverse?

There are a number of ways people use a Macquarie Bank reverse mortgage. Below are some reasons borrowers tend to release their home’s equity via a reverse mortgage:

  • To top up superannuation or pension income to pay for monthly bills;
  • To consolidate and repay high-interest debt like credit cards or personal loans;
  • To fund renovations, repairs or upgrades to their home
  • To help your children or grandkids through financial difficulties. 

While there are no limitations on how you can use a Macquarie reverse mortgage loan, a reverse mortgage is not right for all borrowers. Reverse mortgages compound the interest, which means you end up paying interest on your interest. They can also affect your entitlement to things like the pension It’s important to think carefully, read up and speak with your family before you apply for a reverse mortgage.

What happens if I don’t know my monthly repayments?

Your repayments should appear on your bank statements or your internet banking. If you make weekly or fortnightly repayments, make sure you convert them to monthly calculations.

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When you check your home loan rate, you’ll supply some basic information about your current loan, including the amount owing on your mortgage and your current interest rate.

We’ll compare this information to the home loan options in the RateCity database and show you which home loan products you may be eligible to apply for.

 

Why do I need to enter my current mortgage information?

We use your current mortgage details to calculate the potential savings if you were to change lenders, and also to help us point you to loans that may meet your needs.

For example – if you live in the house you own, we’ll make sure we show you the owner-occupier rates, which are typically cheaper than investor rates. Or if you have less than 20% equity in your property, then we won’t show you the deals that require a greater amount of equity.

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To check your rate, start by entering your contact details and home loan information at ratecity.com.au. We’ll compare your current home loan to other options in our database, and let you know how much you could save by refinancing.  

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How do I find out my current interest rate and how much is owing on my loan?

Your bank statements and/or your internet banking should show these details. If you are not sure, call your bank or estimate.

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