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My Personal Views
Anytime some new financial product hits the market, it really gets a going over by the media and consumer groups. Reverse mortgages have had their fair share of negative comments, some justified in the early days, and some not. I believe a lot depends on a person’s own attitude with the old adage, do you believe “Is a glass half full or half empty?”
I see the reverse mortgage as an excellent solution for people who have significant equity in their home and choose to use that equity wisely as an extra income source in retirement. Once again though, it depends on the individual. My wife Sue and I are the type that would rather use our equity for our lifestyle expenses in later years rather than just get by on the age pension. And fortunately our kids agree and understand we are not going to blow all their inheritance. If the housing market in Southeast Qeensland continues to grow at it’s current rate, the family will still have a nice slice of our equity left by the time we pass on.
One thing that really annoys me personally about being a specialist broker for reverse mortgages is that I have to advise people that they must seek legal and financial advice as part of the application process. There is no way around this. I realise this is required to protect certain people from being “conned” into something they don’t want, but so far the clients I have dealt with are more than capable of making their own decisions. A lot of them have previously been self-employed and are fully aware of the pros and cons of getting a reverse mortgage. Unfortunately, our industry is becoming more regulated and Big Brother wants to help us poor old buggers out.. And as usual, you wind up paying a couple of hundred dollars in legal fees whether you like it or not. I guess we could complain as a group and say it’s discrimination, but that’s another story.
Back to the good news! What makes this market niche so enjoyable for me is that I’m dealing with products that really do make a positive difference to people. It’s the little things that make the difference in peoples lives and I’d like to share with you some of the joy that I have helped people achieve with a reverse mortgage facility.
Due to Privacy Act legislation, the names have been changed, but the examples are true.
I could go on and on and the story’s would all be the same. People just getting on with their lives. That’s what the original intention of the reverse mortgages were for. And as our ageing population grows (it’s estimated that by 2045 Australia will have over 40,000 people over the age of 100!!)more and more people with equity in their homes will find the reverse mortgage will become an important part of their lives.
“I enjoy waking up and not going to work. So I do it three or four times a day.”
Example of compound interest on $30,000 lump sum and $500 monthly payment combination
In this example of a borrower drawing down $30,000 to purchase a car and receiving a $500 per month cash advance over a ten year period, the following results would apply.
At the end of ten years:
- Loan balance would be $175,919
- House value would be $741,154
- Equity in home would be $565,235
Note: These figures are estimates only and based on current interest rates at 11/12/2007. |