Blog

Learn about reverse mortgages and how they work with this video overview by our advisor, Paul Dwyer as he explains the crucial details, the processes and the protections involved in meeting later life needs with a reverse mortgage loan.

For example, when your land value is $1,000,000 against a capital improved value of $1.6m, you will be charged $4,650 in 2025. One of your options to continue using your property is a Line of Credit reverse mortgage. You set a facility amount to use when you wish, and interest is charged on the amount you use. Note that interest is compounding. If you take a long-term view, with a capital growth of a conservative 3%, that is $48,000 growth per annum ongoing. Using the reverse mortgage Line of Credit, borrowers have the capacity to pay Land Tax and most other maintenance costs in order to retain their prized enjoyment.

An amount of $800 per month for 2 years should not affect any age pension entitlements. Speak with Paul to learn more about reverse mortgages and gifting and how your personal situation may assist your family.

Paul has helped thousands of Senior Victorians to successfully negotiate the complex rules that apply to both Pension Entitlements and Aged Care costs and fees. Many senior Australians have limited resources to improve their financial position. Many are on a fixed income, either from Superannuation or the Aged Pension. Paul will discuss your loan structure and advise whether there may be any pension impact. It is important to consider that a pensioner couple may one day have their pension income reduced from couple to single rate ( from $1,458 a fortnight to $967.50) should one of them pass away! Paul will discuss ways you can prepare for this and other ‘Later Life’ expenses.

The first consideration is the age pension and the second is property growth rates. Any amount contributing to a super fund for an age pensioner will be considered as an asset. This may affect pension entitlements. Let’s look at the following 2 scenarios. A 69 year old Single lady wants to fulfil her retirement years and is looking to use the equity in her home to enhance her later years. She is planning to sell her home for $1.4m and currently receives the full aged pension of $987.60 (eff. 21 st March 2022). She intends to buy a two bedroom unit for $1.1m including costs. She would be left with $300,000 – the maximum she can contribute to super. Her current assets are home contents $10,000, car valued at $18,000, cash at bank of $25,000 and $65,000 remaining in super. Whilst her super will give her additional access to living out her dreams, there are two adverse effects in making this decision The growth in her future unit home will be far lower than the current freehold property. If the freehold family home grows at 5% per annum, after 10 years the property is forecast to be valued at $2.28m. If the growth in a unit is around 2%, the property is forecast to be valued at $1.34m. For comparison purposes, the difference between the options is forecast to be $940k. Age pension impact – As super would become an assessable asset, it is forecast that the current age pension of $987 p/f would become $545 p/f – a reduction of $442 p/f ($11,492 per annum). This lower payment would reduce further, when deeming rates are increased into the future. A Couple aged 69 and 67 are retired, have a home valued at $2.0m and looking to downsize and buy an apartment valued at $1.4m including stamp duty of around $65k. This sale would allow them to put the maximum of $300k each into super. They currently have $340k in super, cars valued at $28k, home contents of $10,000 and cash reserves of $22,000. They each receive the full age pension of $744.40 p/f. ($38,708 per annum) Whilst their super will give them additional access to living out their dreams, there are two adverse effects in making this decision. The growth in the future apartment will be far lower than the current freehold property. At 2% growth, the apartment would be valued at $1.63m in 10 years. The freehold family home, increasing by 5% per annum, would be valued at $3.26m in 10 years. As the contribution to super takes their assets over the threshold, they lose their total age pension payments of $38,708 per annum. Whilst a decision to downsize may be formed around suitable accommodation for “ageing in place” needs, the financial results may lead to a lower asset position into the future. A reverse mortgage is a strong option in these scenarios. If the purpose of downsizing is for providing additional income, consideration should be given to a reverse mortgage income stream to meet those needs. The result may lead to greater growth in an asset that is not assessable for age pension entitlements. These scenarios are for illustration purposes only, and readers should contact Reverse Mortgages Victoria to discuss their own circumstances.