Don’t Fall Into Debt Recklessly, Get a Reverse Mortgage In Australia
There are various ways to receive money thanks to the equity you have established through owning a home. While some of the more popular ways are related to selling or renting, people can also take advantage of a relatively new product that can have a positive impact on their finances. Australia is among the countries with steady economies and a rather dynamic real estate market. This of course means that banks and other institutions need to be flexible and easily accessible to home owners across the board. We will look into a very specific home loan known as Reverse Mortgage in Australia. Of course, this name is widely used all over the world but our goal in this article is to get a general idea and provide important information on reverse mortgage in Australia in particular.
As stated above, this is a type of a home loan which has a few specifics. This product targets senior citizens and they are the only ones that can qualify for it. The short explanation is that you give up home equity for funds. That cash can come in many forms and you can choose one of the following:
A line of credit
Regular income stream
A combination of the above
Two more conditions set this loan apart from others. There are no regular payments, no installments or anything similar asking you to transfer money monthly. The debt is only repaid after you sell your property or the last borrower passes away. And finally, all of this means that you continue to own your own home.
The Australian government sees reverse mortgage as a form of a retirement fund and this is why it regulates it like one. Since this service became rather trendy over the last decade, Australia amended its National Consumer Credit Protection Act in 2012 so that it can more adequately regulate reverse mortgages. There is one more institution engaged in governing these home loans and it is called Australian Securities and Investments Commission. Its main tools are related to demanding full disclosure and extensive information from borrowers, advisers or lenders. This means that ASIC basically provides oversight of the whole process and can provide crucial information on Australia reverse mortgage dealings.
There is more governing done by the state in Australia’s case when it comes to applying for and seeking reverse mortgage loans. The only people you can get formal advice from are the accredited specialists in this field. According to the law in Australia, these professionals must be licensed with ASIC or represent a company which is licensed. This is a vital detail as it prevents fraud as well as the distribution of misleading information regarding reverse mortgages in Australia. Never act on your own when it comes to releasing home equity and loaning money – contact professionals.
The practice in Australia shows that borrowers older than 60 years of age are the ones to qualify for a reverse mortgage. Some financial institutions even work with people who are at least 65 or older. In case there are multiple borrowers, the youngest one is required to meet the criteria. This is because in the event of passing of a spouse/brother/relative the other one remains as a holder of the loan, the property and of course, the debt. In Australia at the age of 60 you will typically qualify for a loan equal to 15% of the market value of your home. At the age of 90 you might be able to get an amount equal to 45% of your home value.
A key requirement is to own the property. If it is mortgaged, then the balance must be low enough so that the proceeds of the reverse mortgage can abolish it. In compliance with Australia’s law, the reverse mortgage must be the only lien against this property.
In order to better process the information on Australia reverse mortgage, we need to clarify what the term first mortgage means. This is the primary claim on a property and it precedes or should we say supersedes all ensuing (junior) claims. An important attribute of the reverse mortgage is that most banks or institutions would like to have it assume the role of a first mortgage on your property so that when the time comes for the debt to be paid, they can be first in line.
Net equity is your best friend in this case. Since the interest is capitalised monthly, you want your home value to rise as quickly as possible. The more valuable your house, the greater the difference between what you possess and what you owe (assets versus debts), the greater your net equity. The bottom line is to retain as much of your home value as possible.
We cannot claim we’ve provided you with sufficient reverse mortgage information in Australia if we do not mention the biggest alternative to it. It is called the Pension Loan Scheme (PLS) and is actually a government program. It has been in place for more than 30 years but only lately financial advisers have taken it into account and have started presenting it as a viable option to clients.
In order to qualify for it, however, you not only have to be of pension age (65-67) but you also must not be entitled to a maximum pension or any at all. The goal of this program is to increase the money seniors receive on a fortnightly basis to the maximum pension rate. You cannot opt for a lump sum but you get the cash as a steady stream and you are the one to determine the size of the loan as well as the length. The value of your Australian real estate is again important here as the loan is secured against it. This is a perfect scheme for seniors with less cash but more assets and home equity.