Owning your home in retirement is a great situation to find yourself in. In Australia, there are high levels of home ownership among older Australians, which means a lot of us are literally sitting on our biggest asset!
On the other hand, many retirees worry about their monthly spending and this mental burden is counterproductive to enjoying retirement. On top of this, there will always be some level of uncertainty over your longevity and health, how long your superannuation will last, how much Age Pension you will qualify for, and whether you will need to pay for aged care and health costs.
If you have superannuation when you retire, financial advisers usually recommend you tilt your investments towards safer assets, such as cash accounts and term deposits from banks. This is because the capital value of these investments is protected. But today’s interest rates are very low.
To put this problem into perspective, it means that a whopping $1,000,000 placed on a one-year term deposit paying 1 per cent per annum would only return $10,000 in interest.
From a financial perspective, if you want to access the value in your own home you have two choices: you can sell or you can borrow. Both are big decisions.
The flipside of low interest rates being bad for investors is that they are good for borrowers! A retired person can be approved to borrow via a reverse mortgage. A reverse mortgage is specifically designed for older Australians and there are strong consumer protections in place by law.
A Household Loan from Household Capital is a reverse mortgage. It’s very flexible providing access to capital, a monthly income stream, or both… and there are a lot of things you can do with the money. What’s more, you don’t need to make regular repayments – the loan is repaid when you eventually sell or leave your home.
Vivienne Cable is a 75-year-old Sydney-based retiree who successfully ran her own retail business for many years. As a business owner, she prioritised the success of the business and its finances.
Once she retired at the age of 71, Vivienne was increasingly concerned about her personal finances, as her income didn’t stretch to luxuries or expenses such as helping out her six grandchildren.
“I found I was being very cautious,” she says. “I was terrified of having to take money out of super and having it dwindle. I didn’t want to have to think about where money was coming from for things, like ‘what if I need to change the car or have to fix something in the apartment?’”
Vivienne wanted to help her family and make some improvements to her two-bedroom unit, which she owned outright. “I started thinking it’d be wonderful if I could do something a little bit more substantial for them,” she says. “As well, I needed to upgrade a few things in the apartment that I’d been putting off … I looked around at all the things I’d worked so hard for and thought, ‘this is crazy’. I didn’t want to have to keep saying ‘no’ to things.”
Vivienne decided to release $80,000 of her home’s value using a Household Loan. She took her time and did her research carefully over 12 months. “Fiona at Household Capital was brilliant,” Vivienne recalls.
With hindsight, she says she was surprised to discover how much her nagging concerns about retirement income had been getting her down. “I never knew I’d feel such relief when that [loan] money came through,” Vivienne says. “I can do some consulting work and use my Household Loan and it still doesn’t impact my Age Pension … I’ve also had fans installed, repositioned some lights and re-carpeted and re-painted my apartment.”
John Davis is a 72-year-old Brisbane-based retiree, who was a self-employed building contractor during his working life. He has an adult son and a grandson living overseas.
When he retired, John had to rely on the Age Pension, and he still had a small mortgage on his suburban house. He used a Household Loan from Household Capital to borrow up to 25 per cent of the value of his house.
“Household Capital’s people are exceptionally good to deal with,” he says. “I remember speaking to Esther when I needed to ask a question and she went out of her way to make sure I got an answer that was to my satisfaction. When they said they would do something, it happened.”
John now has a contingency fund for upcoming expenses. He plans to do more travelling post covid to see his son and grandson and help his family financially. “I’m going to pay off the old mortgage and have some rainy-day money,” he said. “I don’t like using a credit card and now I don’t have to.”
He also wants to make some home and lifestyle improvements. “I want to put in some solar panels, renovate my bathroom and upgrade to a newer model of car,” he says.
John is very pleased with the support he received from Household Capital to understand the process and the flexibility of the borrowing arrangement. He has decided to take some money now and some later, and this way he’s still eligible for the full Age Pension. “When I told [Household Capital] I wanted to draw down some of the money, they said it would take one business day to arrive, but actually it was there the same day,” he recalls.
You might be surprised to learn how much reverse mortgages have changed in recent years, to ensure you have guaranteed lifetime occupancy of your home and can never end up owing more than your property is worth. Plus, there are many different ways you can use the money to improve your retirement lifestyle.
The Household Capital team prioritises customer care and guidance, to make the process easy to understand. The Household Capital website is a great place to start.
HOUSEHOLD CAPITAL INFO Important information. Applications for credit are subject to eligibility and lending criteria. Fees and charges are payable, and terms and conditions apply (available upon request). Household Capital Pty Limited is a credit representative (512757) of Mortgage Direct Pty Limited ACN 075 721 434, Australian Credit Licence 391876. HOUSEHOLD CAPITAL™, the Star Device and Household Capital and the Star Device are trademarks of Household Capital Pty Ltd.
IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.
If like Vivienne and John you’d like more money in retirement, check out our calculator to see how much home equity you could access.