Can you assist your children with their home loan?

The number of Australian households who are struggling to refinance due to serviceability issues has surged from 15% to 30% in just less than six months, according to Compare Club.

 

 

New data from the personal finance marketplace and advice company also showed a skyrocketing number of refinancing inquiries from mortgage holders with an LVR of 90%, which makes refinancing tough, if not impossible, and to a level not seen since interest rates began to rise.

– Broker News 23rd August 2023

Are you in a position to assist your family when their home loan repayments are escalating and they cannot get a better interest rate? Do you want to make sure they can retain their home without financial stress or “forced sale”? Have you considered a reverse mortgage payment as a gift? An amount of $800 per month for 2 years should not affect any age pension entitlements.

Speak with Peter to find out more and how your personal situation may assist your family.

Why should I consider a “Cash reserve” in my Reverse Mortgage loan?

A Cash Reserve is simply funds in the reverse mortgage loan that are greater than your immediate needs. These funds remain in the loan and do not incur any fees or charges (including no interest charge) until you actually draw the funds down.

When considering borrowing funds via a reverse mortgage loan, it is important to consider your current needs, your intermediate needs, and your longer term or ‘Later Life’ needs.

Using a cash reserve to fund retirement needs

IMMEDIATE NEEDS

For most people, there is usually a ‘trigger’ that leads to considering a reverse mortgage loan. Often, the trigger is to repay a mortgage loan or credit card debt, but other immediate needs include Home Improvements; Upgrade of the Car; Travel or to assist a family member.

INTERMEDIATE NEEDS

Many of our clients report difficulty in managing today’s costs of living whilst on pension or other ‘fixed’ incomes. One of the primary considerations here is to set up a regular monthly transfer of funds from the loan to the client’s bank account, to supplement their pension income. This is often between $500 – $1,000 a month and can have a dramatic effect on being able to manage the day-to-day costs of living!

Many clients use the regular monthly transfer to pay their medical benefits premiums, ensuring they have the maximum protection against illness as they grow older.

Other Intermediate needs include a future (planned) replacement of the car; home improvements; assistance for a family member; travel and/or holidays.

Longer Term or ‘Later Life’ needs.

A phrase I often use in discussions with clients is “As we grow older, we don’t know what the future may bring, but we can be pretty sure whatever it is will cost money!”

The older we get, the more likely we will need some medical assistance, including possible hospital treatments etc. Even when we have medical benefit membership, there are often significant ‘gap payments’ required. The Cash Reserve can assist with such costs.

Another consideration is when one partner of a couple needs in home aged care assistance or needs to be admitted to an Aged Care Nursing Home. The Cash Reserve can assist with such costs.

And perhaps the most important consideration is when a partner of a couple dies. The joint (couple) rate of pension is currently $744.40 each a fortnight. The single rate of pension is $987.40 a fortnight. If your partner passes away, your household income will reduce from $1,488.80 a fortnight to $987.60 a fortnight. That is a reduction of 33.66%!

Your living costs will not be reduced by anywhere like that amount – That is where a Cash Reserve is a vital component to ensure you can remain living comfortably in your home.

The reverse mortgage loan is in place until the last borrower ceases to live in the property.

Discussing all your needs (immediate, intermediate and ‘Later Life’) with your Queensland Reverse Mortgage advisor at the time of setting up your loan can mean the difference in being able to remain living comfortably in your home for as long as you choose to!

Peter Bolitho

Downsizing for Seniors

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Reverse Mortgage and Age Pension Entitlements

Many older Australians value their age pension payments. For the majority of recipients, the use of a reverse mortgage will have no effect on current entitlements.

Each age pension recipient is assessed on both their assets and income to determine their pension payment.

Maximum assets for Full pension

From 21 September 2021, allowances and full age pensions reduce when your assets are more than the limit for your situation.

Your situation Homeowner Non-homeowner
Single $270,500 $487,000
A couple, combined $405,000 $621,500

Maximum assets for Part pensions

From 21 September 2021, part pensions cancel when your assets are more than the limit for your situation.

Your situation Homeowner Non-homeowner
Single $593,000 $809,500
A couple, combined $891,500 $1,108,000

With a Reverse Mortgage, up to $40,000 is exempt from the assets test for up to 90 days, so the money needs to be spent within this time limit to avoid it becoming an assessable asset. If $50,000 is used for home repairs/maintenance on the principle place of residence, (an exempt asset), the monies spent will not be included as an asset. If the $50,000 is to pay for a new car, the value of that car then becomes a non-deemed asset.

Advisers are required to have a discussion with potential borrowers about future needs and many discussions lead to having a Line of Credit structure into the loan facility to meet any future needs, if and when they may occur. From an age pension perspective, it is important to know that a Line of Credit is not regarded as an asset.

 

 

 

Assessable income on financial assets

The Government has amended deeming rates from 1st May 2020 (and current as at 1 November 2021).

Situation Deeming rate
Single Lower rate: 0.25% on the first $53,000 of your investment assets, plus
Upper rate: 2.25% on your investment assets over the amount of $53,000
If you are a member of a Couple

where at least one of you gets a pension

 Lower rate: 0.25% on the first $88,000 of your combined investment assets, plus
Upper rate: 2.25% on your investment assets over the amount of $88,000

 

Centrelink is the ultimate source for determining age pension entitlements, but an adviser from QRM will assist potential borrowers with basic information about their qualifications.

It is important to ensure age pension recipients regularly update their information with Centrelink. In the first 3 months of 2020, our advisers have met 3 clients whose details have not been updated to reflect their circumstances, and have missed out on between $16,000 and $30,000 over the past 3 years.

 

Are you eligible for the full age pension?

From 20th September 2021, the full age pension is $967.50 p/f for a single and $729.30 each per couple.

We recommend recipients check their payments to reflect their current asset and income position.