Reverse mortgages are becoming increasingly popular with baby boomers spending an estimated $1 billion a year by using equity in their home.
According to a ground-breaking new report, more and more asset-rich and cash-poor baby boomers are converting equity from their homes to fund a better lifestyle in retirement.
Illion’s inaugural Mortgage Nation Report found that in stark contrast to the popularly held perception that Australia’s baby boomers are flush with financial well-being, many older people are forced to remain active in the mortgage market.
Five percent of those over 61 years of age have taken out a new mortgage in the last two years while Australians over the age of 71 have $30.1 billion in home loan debt with $2.6 billion of this occurring in new loans over the last two years.
According to the report, the primary reason is financial necessity with the majority of activity being reverse mortgages for asset rich / income poor retirees who bought a ‘cheap’ house many decades ago, but in retirement have inadequate superannuation savings. They now need to draw on the equity in their prime asset (their house) to live a comfortable retirement.
In addition, what is also likely is that some baby boomers are putting their names on mortgage documents to act as guarantor to their children – giving rise to the ‘Bank of Mum and Dad” – and in some cases, even the ‘Bank of Grandma and Grandpa.’
Older men continue to pursue the great Australian dream of home ownership well past the traditional retirement age of 65 with a staggering 27% of all mortgages over the age of 70 are for single males, a time more typically associated with retirement than still repaying monthly mortgage obligations – reflecting the fact that Australians are now working later, living longer and pursuing the Aussie dream well into their golden years.
There’s also been an increase in the number of older single females with high mortgage exposure. This is due to a number of factors including rising divorce rates, women overwhelmingly providing unpaid care and a wide gap in gender pay. With women living longer than men, a rising trend in reverse mortgages after the death of the male partner may also explain this phenomenon.
Smooth Retirement Managing Director and CEO Scott Phillips said an increasing number of Australian retirees carried debt into retirement, including existing mortgages.
“Many of the clients we help are struggling with debt and need to use some of the equity in their homes to refinance those mortgages and credit cards.
“We talk to people all the time, good people, who for whatever reason have got themselves into some bother. Things haven’t gone to plan and now they’ve run out of super and have tried to keep pushing on and started to rack up some debt.
“And they are not a minority. More than half of Australian retirees have debt and with 20% of retired couples having less than $100,000 in super between them, you can see how in just a few years funds can run dry – even if they are being frugal and claiming the Age Pension.
“With the right advice and planning, those clients can use some of the equity in their home to clean up their finances and eliminate those monthly repayments, not to mention considerable financial stress, so they can live better.”
Smooth Retirement Pty Ltd is an independent service providing expert guidance in equity release and retirement income planning Australia-wide. ABN: 46 619 010 445; AFSL 510015; Australian Credit Licence: 510015; smoothretirement.com.au; firstname.lastname@example.org; 1300 510 015. Terms, conditions, fees and charges apply.