No longer dirty words, reverse mortgages and other types of home equity release are gaining in popularity in Australia.
If you read the personal finance columnists in the mainstream media, however, you’d be right in thinking the majority of them really don’t like the idea of dipping into your home equity to fund retirement – including aged care.
Despite the misinformation and negativity that persists around these types of financial products, there’s been a huge increase in the uptake of them by older Australians.
In addition, new types of home equity release products and services specialising in assisting retirees with the financial planning and application process, have entered the market.
The Federal Government has also contributed to this renewed interest with the expansion, and essentially ‘re-launch’ of its own reverse mortgage-style offering, the Pensions Loans Scheme, in July this year.
When used in the right way, home equity release can be a sensible way for older Australians to improve their lifestyle and fund big expenses, including aged care – both at home or in a facility, according to Smooth Retirement CEO and Managing Director Scott Phillips.
Smooth Retirement is one of a new generation of financial services companies specialising in home equity release planning and solutions for Australian retirees.
Other new players to the market include Household Capital which launched its own version of a reverse mortgage, called a Household Loan, earlier this year.
In addition, fractional property investment platform DomaCom launched its Senior Equity Release product in July – a part-sale property transaction product (although it is actually a financial product with its own PDS) which can also be used to fund any purpose, including aged care.
“Things are definitely changing in the world of equity release,” Mr Phillips said.
“Our company works with all the reverse mortgage lenders and equity release providers in the country, with the lenders experiencing a large increase in the level of take up in the last few years, with the biggest lender for example, having doubled the size of its loan book since 2014.
“When you understand just how many Australians have little in savings or super but own their own homes, it’s no surprise they’re looking for ways to access some of that wealth.
“Selling up to fund retirement and aged care is of course always an option, but the majority of retirees want to stay living in their homes or keep ownership of the home within the family. They also understand that selling their largest asset may negatively impact on their pension.
“What most people don’t know is how stringently regulated these products are in Australia and the protections for seniors that are in place.
“Whether it’s a reverse mortgage, the Pension Loans Scheme or a part-sale property transaction, the most important step is planning and making sure if you do choose to use some of your home equity now, you have enough for your later years of retirement, including your aged care needs.
“Equity release is complex and understanding how the different products work and which one is the best for you is challenging. That’s why getting the right advice is always recommended before signing up to any financial product.”
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.