Asset Rich but Cash Poor?
Reverse Mortgages can help
Reverse mortgages (RM) are available to those retiree’s who are "asset wealthy and cash poor" with their house and a small amount of savings. Their only source of income is government super, of around $19,425 for a single person, or $29,184 for a couple, before tax. The result can be a cashflow shortfall to cover unexpected medical expenses, repairs and maintenance or just to maintain their standard of day to day living. This is where RM’s come in. They effectively allow the use of the stored home equity to fund these needs – and yet continue living in the house.
They are common in the UK, Canada, some parts of the USA and Australia. Invincible Life owners Gene and Eugene Thomas (both later infamously murdered) were pioneers of RM’s in New Zealand. An Achilles heal of these early schemes was the high costs and insurance fees. It was no fault of RM’s that lead to their demise but it was some time before other providers arrived in the local market place.
Their resurgence is due to changing attitudes, with consumers regarding RM’s in a more positive light and retirees become less debt adverse and include these options into more structured financial plans. Also, the huge equity growth experienced in residential property over the last decade also makes for a more positive outlook toward spending some of the capital or equity.
Homeowners are using reverse mortgages to do everything from buying recreational vehicles to renting apartments a few months a year overseas or purchasing a second home for a holiday getaway.
An increasing number are deciding to enjoy the rewards of having paid off their house. This is all a far cry from when RM’s were generally considered loans of last resort. RM settlements are evolving from desperate needs-based reasons to funding people's wants.
The Sentinel’s lifetime loan is a lump sum advance and then further lump sums as needed plan. You can borrow a percentage of your property value depending on your age. Repayment are not necessary but you can if you want to.
Interest rates are a very important component of any debt facility. RM’s are more expensive than conventional mortgages. This premium is an important issue to understand as the long term impact is significant. Variable rate options internationally, have seen folk in deep trouble with at times soaring interest rates quickly crippling their equity capacity.
The borrower keeps control of the house and doesn't have to pay back the money as long as he or she lives there. When the homeowner dies or moves out, the house is sold, the loan is paid off, and any money left over goes to the owner or the estate.
Insurance or loan repayment guarantees are part and parcel of these schemes. In simple terms this means that you or your estate will never have to repay more than the sale value of your property and you will not be forced to move or sell – ever.
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