You are heading into retirement or you might even be retired but you have the weight of a mortgage still hanging over your finances. Dianne Shepherd, COO for Homesafe Solutions looks at how equity release in the family home can help you eliminate debt and give you the retirement lifestyle you’ve always dreamed of?
The bad news is more Australians are entering retirement with mortgage debt. However, the good news is mortgage debt may be eliminated by using the equity in the family home.
READ MORE FINANCE ARTICLES: Top tips on managing your own super fund investing
Recent studies have shown a surge in the number of over 55s with outstanding mortgage debt: RMIT found the number of Australians aged 55 to 64 still paying down their mortgage has jumped from 14 per cent to 47 per cent in 26 years.
Some over-55s may try and restrain their lifestyle to pay down the debt, but this can be easier said than done.
Others may feel compelled to draw down on their superannuation to pay off the mortgage once they retire. But using superannuation will often not be enough to pay off what is owed, and could then leave retirees relying on a government pension. This is a lose/lose proposition for retirees.
One powerful alternative to crimping on lifestyle or raiding the super, is to release some of the equity from the family home. However, replacing mortgage debt with debt with compounding interest may not be the answer. As a result, many homeowners are turning to a debt free equity release solution instead.
For people nearing or at retirement age, it’s important to consider how long the equity release arrangement will be in place, particularly as we are all living longer. The longer a debt arrangement is in place the higher the risk of compounding interest costs will erode the equity in the family home into the future.
A debt free arrangement such as Homesafe Wealth Release® provides certainty, so there will be no surprises once the family home is eventually sold. The equity in the home, which is quarantined and remains protected for the homeowner or their Estate, is agreed up-front giving peace of mind it will still be available later in life, or to pass on to beneficiaries.
Accessing the equity in your home is a big decision and it is recommended you take your time and weigh up all the pros and cons before proceeding.
There are five key reasons why equity release may be a good idea:
- When you’re asset rich and cash poor: Many retirees are compromising their lifestyle due to limited income, yet have substantial wealth tied up in assets. For many, the biggest asset is the family home, which is an illiquid asset. Downsizing into a smaller property may deliver uncertain outcomes and could include substantial costs involving the property’s sale, stamp duty on the new property, and moving costs.
- For seniors who wish to stay in the community they love and supplement their finances and lifestyle, equity release may be a practical way to tap the wealth in the home.
- When there’s a stubborn debt you wish to get rid of: For many Australians, debt is the biggest brake on their retirement lifestyle. Using equity release to pay off debt, such as a mortgage or credit cards, can have a profound impact on a retiree’s well-being as well as their cashflow and is among the most common uses for equity release.
- When you wish to invest in something special: Something special may also include those projects or dreams you never quite got around to – for some it will be the holiday they have always wanted, or even the cruise they have always dreamt about.
- When you need home improvements: Most Australians want to stay in their home as long as possible, and may need to undertake some much needed repairs or home improvements to enhance their home – particularly once they become ‘empty nesters’.
- When you understand the consequences: Equity release should not be a snap decision in any circumstance. It must be thoroughly considered. Take the time you need so everyone understands exactly what’s involved and there are no surprises later.
Add Comment