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Reverse Mortgage?

In this week's leader newspaper, a former mayor is calling for moreland seniors to "stop crying poor" and take out a reverse mortgage to live with dignity.

The idea of a reverse mortgage is to take a cash loan against your house, and then make no repayments until you move out and downsize to a retirement home.

http://www.fido.asic.gov.au/fido/fido.nsf/byheadline/Reverse+mortgages?openDocument

I don't know if this is a really good idea. If you take one out at the bottom of a property cycle, you get less money, and then when you want to buy into a smaller property later in the property cycle you could end up short.

If you take one out too early, you can end up short.

Finally, if your house is your only asset, you are basically pawning it.

and what about all the renting pensioners? don't they deserve dignity too?

At the present time, the government is apparently disappointed that the reverse mortgage scheme has few takers. I hope it stays that way.

Comments

( 3 comments — Leave a comment )
(Deleted comment)
parakleta
May. 23rd, 2009 02:57 am (UTC)
I don't think reverse mortgages aren't that bad, they seem like quite an acceptable option so long as they're managed carefully. The big issue is making sure that you only release a fraction (say 50%) of the value, so market changes aren't likely to affect you. I haven't looked at exactly how everything is worked out, but I suspect it's not unreasonable to turn a $500k property into an extra $100 a week, and still own a third of the property in 40 years time (based on the value of the property growing at a similar rate to the interest on the mortgage).

The alternative is to downsize right away, and invest the difference and live off that. The advantage of the reverse mortgage is you get to stay in your same house.

I think it is something that needs to be done cautiously, but caution can be factored in and you can still end up with something that's worth doing. I don't think it's unreasonable to say that someone who has $500k in assets is not as deserving of assistance as someone who has none. Similarly, it's likely that the person with $500k in assets has a slightly higher expectation of quality of life in relation to those without, and I don't think it's unfair to expect them to use their assets to maintain that higher standard if that's what they decide.

Really, your home is not much different to superannuation, except that you live in it. So long as a lot of care is taken to make sure that you don't lose the roof over your head (for example, making it a requirement in the reverse mortgage contract) then it's fine.
asmodel
May. 24th, 2009 08:39 am (UTC)
I don't think it's unfair to expect them to use their assets to maintain that higher standard if that's what they decide.

Having said that, people living on the pension really *are* badly off. I can personally vouch for it. It's not so bad for me, as there's the possibility that I may one day return to work. Aged pensioners do not have this possibility. Self-funded retirees still may not necessarily have a high income, and with the higher probability of illness and disability, your costs in many things rise, not just medical related. They've been working hard all their lives, and I don't think it's unreasonable for them to expect that they can retire without having to struggle financially.

I haven't looked into the financial side of it well enough to make a qualified opinion. My gut instinct is that if your earning potential has been cut off for the rest of your life, and you live on a fixed income, it is best to take as little risk as possible. This is probably far less risk than someone our age would be willing to take on.
( 3 comments — Leave a comment )

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