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.

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