Retirees
1. The Common Issues Facing Retirees
2. Who is going to resolve this?
3. A new option - Equity Release
4. How does Equity Release work?
5. How do the funds come to me?
6. What can funds be used for?
7. Can I make repayments?
8. How much can I borrow?
9. Will my home be valued?
10. Obtaining advice
11. Will taking this loan impact my pension?
12. How much will the loan grow?
The common issue facing many retirees
There has been much comment about the ‘savings shortfall’ that many senior Australians can expect to be faced with in their retirement.
This ‘savings shortfall’ represents the difference between the level of income required to support retirees, and the actual income available from their savings (including super plus any pension entitlement).
The reality for many seniors is that their savings in retirement will simply not last long enough.
The issue has become an increasing focus of many in society, including the Government, senior’s organisations, seniors themselves and their families.
Who is going to resolve this?
We are encouraged to investigate other means of supporting ourselves in retirement rather than simply relying on the aged pension and whilst peak senior’s organisations can lobby the government with ideas, there is a real need today for many seniors to address this issue for themselves.
There are a number of options, which can be discussed with family, advisers and Centrelink. These can include downsizing your home, borrowing from your family, re-organising your expenses and budgeting; even working again. A new option that is now increasingly being used is to release a portion of the equity in your residential property and have it better support you in retirement.
A new option – Equity Release
This option is called ‘Equity Release’ and refers to the release of equity in your property, providing you with additional funds to support your retirement.
There are typically two forms of Equity Release products
1. Funds released via a mortgage secured on your home
2. Funds released via the sale of a portion of your home.
The only form of Equity Release available in Australia today is the lifetime mortgage, often referred to as a reverse mortgage.
How does Equity Release work?
It is a loan to senior homeowners that allows them to access a portion of the equity value in their home. No repayments are required whilst the borrower(s) remains in their property. Interest and fees accrue on the loan and the loan is repayable in full when the last surviving borrower permanently vacates the home or the home is sold.
How do the funds come to me?
You generally have a choice to receive the loan either as a lump sum or as a regular payment.
What can the funds be used for?
Generally, the funds can be used for any worthwhile purpose
Can I make repayments?
Repayments can be made at any time. You should check with the Lender to see whether any fees apply.
How much can I borrow?
Lenders have different criteria when assessing how much each applicant may borrow. The amount you can borrow will generally be determined as a percentage of your home’s value, and based on the age of the youngest borrower as well as the location and value of your property.
Will my home be valued?
SEQUAL members need to ensure they have the most current and up to date value of your property. When assessing your loan application, a Valuation is likely to be required. Some Lenders will re-value your home from time to time, to ensure your property remains in good condition and to monitor changes in property values. You should check with your Lender regarding the frequency and cost of this service.
Obtaining Advice
SEQUAL members will strongly recommend you obtain independent financial advice, but you will be required to obtain independent legal advice from a solicitor of your choice.
Will taking this loan impact my pension?
As each seniors’ circumstance will vary from person to person, SEQUAL recommends that you discuss your proposed equity release transaction with your Centrelink FIS Officer. They can be reached on 13 23 00.
How much will the loan grow?
Lenders are required to make available a tool allowing you, or your adviser, to illustrate the growth of your loan over time, together with the potential change in value of your property. These illustrations should include a range of assumptions around future interest rates and property price movements.
