What is the best alternative to a reverse mortgage in Australia?
It’s quiz time!
Are you an Australian homeowner?
On the verge of retirement or already living the no-work life?
Have you ever heard of a reverse mortgage?
And are you looking for a way to finance your life past the employment hours?
If you answered all of these questions with a bold YES then keep on reading. We collected other options available for you to unlock the equity that sits in your home – and uncover the best alternative to a reverse mortgage.
In a nutshell: What is a reverse mortgage
A reverse mortgage is a type of home equity loan for 60+ year olds that allows you to retrieve equity from your property. It’s an attractive home loan for many because you don’t have to repay it right away. That’s right. You don’t have to move out of your current home and there are no monthly payments. Sounds too good to be true?
Here’s the big catch: The full loan including interest and fees will have to be paid eventually – when you decide to sell the house, move (e.g. into aged care) or pass away. Without monthly payments, the total loan amount can be very overwhelming to cover.
What other options are there for homeowners to unlock money?
A reverse mortgage sounds like a good option at first to sort out your finances for retirement but it comes with a heavy follow-up payment that can be stressful to deal with. However, there are more options for you to consider that can work out even better for your situation. Before you settle on any of these, we recommend getting in touch with a financial adviser or mortgage broker who can give you a tailored recommendation.
- Think about a home equity line of credit (HELOC)
Another home loan type you could take out is a home equity line of credit. A so-called HELOC allows you to borrow a certain amount of money based on the equity that sits in your property. The good part: you only pay interest on the amount you actually take out. It’s a very flexible loan that often comes with a variable interest rate. A secured line of credit can include a closing cost depending on the lender.
- Refinance your existing mortgage
If your existing home loan causes you sleepless nights, it might be an option to look into refinancing your mortgage. Switching home loans to a different lender could be a way for you to reduce your monthly payments and free up more money. You can try to negotiate a lower rate, a shorter payback period or even extra benefits such as a refinancing reward. Just make sure to review whether it’s worth choosing this path with the attached exit fees and additional costs that come with refinancing your home.
- Explore the Home Equity Access Scheme
Services Australia offers older Aussie’s to receive a voluntary non-taxable loan via the Home Equity Access Scheme. It’s a way to sponsor your retirement income by using your equity bound to your property as a security for your loan. Once your loan application is successful and you can borrow the money, you can choose to accept the loan as either a fortnightly amount or an advance payment of the loan as a lump sum. Unlike the reverse mortgage, you can pay back the loan in part or full any time.
- Consider having a tenant
Spice up your living situation with another person moving in. Renting out a spare room or part of your home can be a great way to make new connections while supporting your bank account. And you are not bound by a loan with interest fees for years and decades to help finance your lifestyle. Single people looking for a place to live or commuters that seek a home for the weekdays could appreciate your comfortable four walls in exchange for a monthly rent. If you don’t want to commit to a tenant you could also rent out your house when you go on holiday.
- Downsizing your home
A great way to create a safe retirement scenario is to downsize your home. No type of loan is needed for this option which means that you don’t have to worry about any additional monthly payments over a long-term period. Yes, it means you will have to move out of your existing home, however, you can free up an equally big amount of equity (just like with the reverse mortgage) by selling your house and moving into a downsized home instead. The effort will be rewarded with a much more updated living nest that not only suits your needs for retirement and what’s to come, it’ll also give you back more time to spend on the fun things in life. All without the strings of interest rates or repayment costs attached.
Why downsizing is the best alternative to a reverse mortgage
You now know of other options to finance your life past the working hours other than the reverse mortgage scheme. Selling your home to free up equity is a fantastic alternative that actually gives you more than just money.
Reach a perfect balance of having extra savings that sort you out for retirement and a much more comfortable living situation. You get to live in your own property and gain a bigger lifestyle on top. At Lifestyle Communities, we champion an independent lifestyle and value our communities of like-minded older but young-at-heart homeowners. We believe that you deserve a retired life that reflects the hard work that you put in for many years. That’s why our beautiful homes in Victoria are equipped with luxurious amenities for the true holiday vibes all year round. Bonus fact: you can downsize and get ready for retirement while still working!
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