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Ask the Expert: Struggling financially? When to consider a reverse mortgage

Drawing money out of your home can make sense for some people.

Drawing money out of your home can make sense for some people. Photo: TND/Getty

Question 1

  • What do you think of reverse mortgages? 

I think they have their place.

The equity in your home is an asset that can be used to provide you with income, a lump sum, or both.

Traditionally, the culture in Australia is to protect the home and not even consider a reverse mortgage. However, this is slowly changing.

In fact, recent figures from the Department of Social Services indicate there are 9750 older Australians in the government’s reverse mortgage product (Home Equity Access Scheme) in June 2023, compared to only 6041 in June 2022, a growth rate of about 60 per cent in just one year.

Home prices have increased significantly, and many retirees have little super or no other investments. Therefore, drawing some money out of your home could make sense for these people. Especially if they don’t want to move out of their current home, it provides a nice alternative.

When reverse mortgages first came to Australia there was little regulation around them.

These days it’s different, this includes providers having to provide a ‘no negative equity guarantee’. That means the loan created by the reverse mortgage can never be larger than the value of your home.

You can also set a ‘protection’ amount. For example, if you always want to retain at least say 50 per cent equity in your home, then the provider will provide you with a lower loan to ensure the loan value never gets greater than 50 per cent of your home value.

You must do what is right for yourself. If you are really struggling financially, or if you have some retirement dreams you want to fulfill, then sometimes a reverse mortgage may be your best or only option.

Just know what you are getting into – that is, there will be a debt that has to be repaid when your home is sold (perhaps after you die).

Also ensure you have a discussion with possible beneficiaries so there is no surprises or arguments after you are gone. To that end, make sure you update your will to cover this.

The best place to start is having a look at the government Home Equity Access Scheme. It’s very competitive, conservative and backed by the government.

If you want a larger loan and/or require a lump sum rather than regular income, then you will need to look at a private provider.

Question 2 

  • Hi, I am 63 years old and have around $700,000 in SMSF. My spouse is much younger than me at 35 years old, and has around $20,000 in super. Should we combine our super into a single fund or leave it separate? We would like to purchase a workshop for a business we are operating and would like our SMSF to own this property.

You cannot ‘combine’ super accounts. However, you can both be members of the same SMSF. But your individual balances within the SMSF must remain separate. So, the SMSF could have a combined balance of $720,000 but you must keep track of your individual share of this.

It may be possible for your SMSF to buy a business premises then lease these back to your business. However, there are a number of technical rules that must be followed, and you would need to seek specialised advice over this.

 Question 3

  • Do any industry super funds have a call centre in Australia?

All individual super funds operate either their own call centre or outsource to a major call centre provider.

Under both models, my understanding is that the vast majority of call centres for industry super funds are located in Australia. However, you would need to confirm this with your fund.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.

The New Daily is owned by Industry Super Holdings

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