Have you considered what might happen if you’re left with a mortgage you can no longer pay? The loss of a partner, divorce or redundancy can take us by surprise and often require some swift financial decisions on top of the stress of the event itself.
Fortunately, as long as you have some equity in your home you are in a reasonable position – and hopefully you will have time to make the best decision for you. Here are some options.
A mortgage in reverse
If you need more money to live on while staying in your home, you have the option of refinancing your loan to release some cash. This arrangement is called a mortgage in reverse, and is available to over-60s from a variety of lenders (or, if there are two of you, one borrower can be as young as 55.) You might use this option as a temporary solution until you can decide what you want to do next or continue it as a permanent arrangement.
A mortgage in reverse allows you to borrow money against the equity, or value, of your home. In general, the older you are and the more equity you have in your home, the more you can borrow. The loan is repaid when the home is sold or upon your death, and you don’t need to make any repayments until that time. Bear in mind, though, that interest will accrue on the loan, meaning the amount that you owe will continue to grow.
If you’re 60 years of age, you can borrow a maximum of 15% to 20% of your home’s value, and around another 1% for each year over 60. The minimum you can borrow is around $10,000, and you can take the money as a line of credit or a lump sum.
While these loans allow you to free up cash to spend now against the value of your home, a mortgage in reverse does mean that there will be less profit when it comes time to sell, so you need to think about where you will be moving to next, or if you intend to stay in your home for the foreseeable future. A mortgage in reverse may also be subject to higher interest rates.
Wondering how much you can borrow against your home? The Moneysmart government website has a calculator that gives you an estimate of your borrowing power and repayments.
Alternatively, the Australian government offers a Home Equity Access Scheme that allows pensioners to borrow against the value of their home. You can take this payment as a lump sum or a fortnightly payment and, as with a mortgage in reverse, interest will accrue on the loan.
Sell your home and downsize
Another option is obviously to sell. Currently the housing market is performing well, despite rapid interest rate rises, and it’s not a bad time to downsize and move into a more manageable property. Focus on the areas you want to live in and then see what’s available – retirement villages, apartments and land lease communities are all great options if you want to simplify your living arrangements and reduce costs.
Co-living with like-minded people
Share houses work well for those who enjoy some company and enjoy sharing daily life with others. A couple of new platforms make it easier to find like-minded people of a similar age. If you’re looking for a home or a new housemate, here are some places to start looking:
Calyptus Co-living is an initiative that partners investment property owners with senior Australians looking for somewhere affordable to live long term.
Senior flatmates – these are free-to-advertising listings on our website. Here, individuals can search for house shares and also advertise for tenants if they don’t want to move but would like some extra income. Read more about the growing popularity of share houses for seniors.
Again, you could consider co-living as a temporary solution, maybe when you’re between homes or deciding where you’d like to live in the future.
One final note on reverse mortgages
You should always seek independent financial and legal advice prior to making any decisions about your mortgage and other financial matters.
You can also ask Services Australia’s financial information service how any kind of loan against your home will affect your pension or other benefits. This service is free of charge and is there to help you make informed decisions about your financial situation.
Want to learn more about making the most of your next 30 years?
Retirement living can be the best time of your life.
We’re committed to making life better for the over 55s. Check out downsizing.com.au for more insights and great advice on living life to the fullest. We have a great range of properties for the over 55s to help you do that with like-minded people in land lease communities and retirement villages.