What can you do if you are asset rich and income poor in your retirement? Let us suppose that you own your own home worth $355,000 which is mortgage free and that your only income is National Superannuation. You can find sufficient funds to meet basic outgoings, but repairs and maintenance are becoming a worry and you may have to cancel your medical insurance but don’t know how you will pay for health care and prescription drugs. By taking out a reverse equity mortgage, you can have access to the equity in your home to pay these outgoings, without having to sell your house.
Reverse annuity mortgages have been growing in popularity, due to necessity. In the past these loans have been viewed with scepticism becaue of the seemingly high costs and interest rates. Some of the more modern loans are easier to understand, give greater flexibility, have some safeguards and are at lower interest rates than offered in the past. Nevertheless there could be pitfalls and each loan needs to be considered carefully and compared with others on offer, as well as matching the loan to your own needs.
The basic fundamentals are as follows:
The mortgages allow borrowers over a certain age, usually 60 or 65, without an income stream, to access the equity in their houses.
Applicants can apply for a loan up to pre-determined percentages (depending on the lender) of the current market value of their home.
The loan amount can increase every year past the commencement date – the older the customer and the greater the value in the home, the more money can be borrowed.
Monies received under the mortgage are tax free and will usually be obtained in a lump sum, or possibly by way of a monthly payment.
The mortgages are most suited to those who are asset rich but income poor, and want to enjoy life a bit more. Reverse annuity mortgages will differ between mortgage providers and between each borrower. Whether such a mortgage is the correct option for a particular individual must be considered on a case by case basis.
Fortune Manning have acted for a number of clients who have entered into these loans. For assistance, please contact Tony Fortune, Bill Duncan or Lauren McIvor, and for more information on enduring powers of attorney, Relationship Property Act and Auckland lawyers please www.fortunemanning.co.nz .