How do you retire without struggling for money?

You’ve no doubt heard from a few financial commentators about the benefits of a ‘reverse mortgage’. And you’ve also possibly heard that “it’s a product with the potential to unlock the equity in your home, for people who are asset rich but cash poor”.

Let’s look at what a reverse mortgage is… 

Aimed directly at home owners who are over the age of 65, it’s an opportunity for the bank to give you a portion of money in return for the deeds of your home. You effectively re-mortgage your home, and the borrowings are capped at 20% of the value of your home.

Nothing needs to be repaid, however, until you either die or sell-up. The interest rate for this ‘loan’ is usually a little higher than home loan rates and starts building from day one. This generally means that the debt will more than double in 10 years.

It sounds like a great deal for people who want a share of luxuries in their retirement years. 

Having worked as a mortgage broker and organized a few of these loans, I’ve witnessed the smiles of pensioners who have taken this opportunity to use the equity in their home. For them, it’s meant that they can do some minor renovations to their home, take a holiday to an exotic location, or purchase a new car.

But, sadly, they usually return within two years – looking for more money. With the extra money gone, their life has reverted to a ‘struggle’ once again. The old age pension is merely just enough to cover the most basic of expenses and there is little spare for even small luxuries.

How do we stop this from happening?

It’s quite easy really – a simple household budget now (before you retire) can put some money into a savings account. That will help in the future. And for those who have already retired? A simple household budget will help take the ‘struggle’ out of meeting basic expenses and managing your money on a daily basis.

Of course, there are some instances where a ‘reverse mortgage’ might be appropriate, and there’s some great information available from the ASIC website. If you’re thinking this is something you’d like to investigate then it’s also very important that you get some advice suited to your own very personal circumstances by visiting a financial planner, accountant or financial advisor.

 

(c) Carmel McCartin – Budget Bitch

Just so that you know – (The views expressed in this blog are the personal opinions of the author. Don’t rely on them to make financial decisions, you have to make up your own mind. If you don’t like the content – then either stop reading or send me an email)

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