People over the age of 60 may at some point struggle financially due to a number of unfortunate events that might have occurred. Being financially stable can turn out to be quite challenging for senior citizens but there are ways for their status to be improved. Australian reverse mortgage provides people over 60 with the opportunity to receive a sum by using their house as security.
Most people are skeptical initially as reverse mortgage is a relatively new service which is only now growing in popularity. However it definitely gives seniors a peace of mind when it comes to paying bills and covering their day-to-day expenses. A lot of older fellas in Australia are asset rich and cash poor. A financial tool such as a reverse mortgage truly allows them to monetize the equity of their home instantly.
Here is how it works in short. Reverse mortgage is available to citizens at age 60 or more. You use your home equity as collateral and have no monthly payments. The loan is repaid when you sell your house or the last borrower dies. The catch comes when we talk about the interest. It is capitalized monthly or yearly which also increases the size of fees and charges over time. Refinancing, however, is an option.
As of 2012, it is impossible to owe more than the value of your home in Australia. An act was approved in this very year which established the “no negative equity” guarantee. This doesn’t prevent you from losing 100% of your home equity, however. In fact, it is recommended that an Australian reverse mortgage calculator is used prior to engaging in such a deal. Many times the surviving spouse won’t have enough equity left when the loan is being repaid. This means that as you sell your property, you lose 100% of the price you have gotten for it in order to repay your debt.
Such circumstances will leave you with very little, if any, money for aged care and will also deprive your heirs from a certain portion of your heritage. There is something called loan-to-valuation ration. It basically means that the younger you are, the less equity you are allowed to release for money. As you get older, the bank will allow you to loan a larger sum equal to more equity of your home.
Not so many institutions offer a reverse mortgage in Australia as it holds risks for lenders as well. An alternative to Australian reverse mortgage is an equity release scheme. The bank takes a fixed stake meaning that their share does not rise over time. They just benefit from the rise of property value.
A government program has put in place the Pension loan scheme. This is again a loan against your property. It is pretty same as a reverse mortgage but can be taken only as a stream of money. If you have something planned such as a big renovation or a vacation abroad, you won’t be able to receive a lump sum in order to fulfil your goals.