Could you "give the kids some of their inheritance now" with a reverse mortgage?
19 January 2018
As property prices rise in Australia, there is a great amount of difficulty for first home buyers being able to afford to purchase, with one of the major obstacles being saving for the deposit and property expenses required to get on the ladder.
Many parents and grandparents may wish to help their children can’t because of a lack available funds. However, there is not a lack of assets – a recent study by Griffith University has shown that 63% of Australian beneficiaries are likely to receive more than $100k out of the estates of their parents. This was wealth held in assets like property and super, which could help with the home ownership dilemma.
However, there is another option – to pay this bequeathment forward now rather than waiting. A reverse mortgage can be a good option to do this, as it can allow you to access the equity held in your property.
Care needs to be taken when using a reverse mortgage for gifting and Heartland aims to ensure customers make an informed decision. We also do not allow gifting when the application is being signed by a Power of Attorney.
There are several important points to consider when deciding to gift funds. These include:
Depending on your pension circumstances and the amount being given, gifting funds to your children can impact your entitlements. When considering this option, you should always speak to Centrelink to discuss your plans, more information can also be found on their Gifting Page.
Discuss with Family
Family discussion is a key part of the process in taking out a reverse mortgage. Whether or not you decide to discuss with you family is your decision, however on Heartland's application form we actually get our customers to acknowledge whether (or not) they have discussed the loan with their family. When gifting funds to another family member, it’s always a good idea to discuss it with anyone that could be affected – that way there are no hard feelings later on and everyone is on the same page.
It is important that making the decision to gift any amount of money to family or friends is made freely, and in an informed manner. We require that you receive independent legal advice on your loan agreement by a solicitor of your choice, to be able to represent your interests and work with you to explain and discuss your loan. It may also be useful to obtain additional financial, accounting, or other advice.
You should also never feel pressured to access funds from your home to gift to a friend or family member. Discussing with Centrelink, all family members, and your advisers will help you make an informed decision – which is extremely important when taking out a reverse mortgage.
Another important aspect when deciding to take out a reverse mortgage is thinking about your future needs and how they will be financed. This includes considering what your future needs will be, including the cost of aged care accommodation (which can be significant), and whether you are looking to also leave funds in your estate. As noted in a previous article, a big factor is longevity risk - the risk of outliving financial resources.
A way to inform this decision, and make sure that you will have the money you need now and in the future, is to think about what you will need and then completing a calculation to see what equity will remain in your property in the future if you take out a reverse mortgage. A link to ASIC's Money Smart Reverse Mortgage Calculator can be found here to complete this calculation, or one of our team can complete a tailored one for you.
Here at Heartland, we are proud to have helped over ten thousand customers live a better retirement with our reverse mortgage. For more information, please feel free to contact our friendly team on 1300 889 338 or [email protected]au. We are here to help you.
Manager - Marketing & Compliance
Information provided is accurate as at 19 January 2018 and may change from time to time