Many older Australian’s are asset rich, cash poor, and reliant on either a part or full pension to live on. This limited income prevents you borrowing and stops you from updating your car, repairs to your home, having a holiday, topping up your living income, entering aged care facilities to name a few things.
We often hear calls for these people to sell and downsize, but this is a difficult decision. The family home holds memories of children growing up, the good times and the bad. While economically downsizing makes sense, emotionally it is a difficult decision.
So, what is the answer? We have access to a group of products called seniors loans. These used to be called “reverse mortgages”, and gained a deserved bad reputation in the 1990’s and early 2000’s. As the finance industry has evolved, we have learnt that these products are not a “cure all” and these loans must be tailored to each person’s individual needs.
How these loans work
The amount that you can borrow depends on your age – the younger you are the less that you can borrow, and as you get older the amount available increases. The maximum loan is a mix of the value of your home, and a percentage determined by your age.
Most lenders have a ‘no negative equity’ clause meaning that when you move out of your home you will never owe more than the property is worth. In addition to this, some lenders will offer ‘equity protection’. This means that you will always have an agreed minimum equity in your home.
Interest is charged on the loan based on the balance outstanding each month. The interest is then added to the loan and you can elect to pay all of it, a portion, or none at all – any interest that you don’t pay is simply added to the balance.
How can these loans be made available?
With this option the lender will deposit funds into your daily bank account for you to use. The funds will be made available monthly, quarterly, or annually and can be used for any purpose. For example, you might elect to have an amount sent to you each year when your rates and home insurance fall due. You’re in charge of this and control how much and when funds are released.
Need a new car? A new roof? Bathroom renovations? You can borrow to meet any of these one-off expenses.
Want to take that big holiday? Now that you are retired you have the time, so it’s an ideal time to take that big trip. But see below.
Retired but still owe money on your home? Have some credit card debt hanging around? You can consolidate your debts into a senior’s loan.
Aged Care Costs
When the time comes that you need to entre an aged care facility it can be very emotional. Adding the stress of having to sell your family home at that time can be even worse. With a senior’s loan you can use your equity to pay the accommodation bond, then when you are settled and ready you can sell your home – on your terms.
The fine print
Taking on a senior’s loan is a big decision, and not one to be taken lightly. We will ask you to obtain independent advice – financial and legal. For many people the family home is their major legacy to their family, so we will spend time talking to you about things like the reduced equity in your home, the risks, protecting some equity, what you want to leave your family, if you are taking a senior’s loan in your 70’s we will talk to you about how you will have the funds available if and when you need to go into an aged care facility.
If you are taking the loan for discretionary expenses such as a holiday or a gift to a family member, we will make sure that you understand the longer-term risks of spending now and needing funds later. Basically, we will look after you like we would our own family, because once you are a client of ours that how we see you, one of our family.
Having made the decision to look at a senior’s loan seriously it’s time to pick up the phone and call us. You will be looked after by a Lending Specialist who is trained, experienced, and compassionate to your needs & circumstances.
Call us today on our free call number. Our operator will ask you a few questions and then pass you onto your nearest local trained Lending Specialist.
Before applying for a loan online, you need to read our Credit Guide