Strapped for cash?
Well, you may be in luck. You could be sitting on a cash pile that’s around three–five times your superannuation balance.
That is, of course, if you’re a baby boomer living in a lucky suburb.
That’s right I’m talking about property.
Why should you care now, though? Well, it turns out now’s the perfect time to access that equity through a reverse mortgage.
But before you do anything silly, you may want to talk to a professional about this first…
What may be a good decision for your neighbour may not be suitable for you.
Though, that won’t stop your mouth from watering.
Your property could be greater than your super
Take a read of this…
‘Actuarial analysis of super savings and median property values in blue-chip suburbs reveals average Boomers aged over 60 are sitting on fortunes that could be used for their super income.’
That’s what the Australian Financial Review reported, anyway.
Before you jump the gun and tap this income stream. Let’s just make it clear that this is about reverse mortgages.
Just in case you’re confused as to what a reverse mortgage is…
In short, it’s a loan that allows you to borrow money using the equity in your home as security.
But there’s a catch…as with any loan, you’ll be charged interest. Here’s what the Money Smart website had to say about this.
‘Interest is charged like any other loan, except you don’t have to make repayments while you live in your home – the interest compounds over time and is added to your loan balance.
‘You must repay the loan in full (including interest and fees) when you sell or move out of your home or, in most cases, if you move into aged care, or die.’
Yep, it’s not free money.
Today there are 4.5 million retirees sitting on a nest egg that’s potentially five times their super savings.
Nick Sherry said releasing home equity needs to be encouraged to top up modest retirement savings.
Nick is a former superannuation minister and chairman of Household Capital.
I have different thoughts here. But let’s just agree to disagree.
Should you borrow against your home?
If you were to do this, how much can you borrow?
Let’s go back to the Money Smart website to answer this.
‘The older you are, the more you can borrow…
‘As a general guide, if you are 60, the maximum amount you can borrow is likely to be 15-20% of the value of your home. You can usually add 1% for each year older than 60…if you are 70, the maximum amount you could borrow would be…30%.
‘The minimum amount you can borrow may depend on the provider; it could be as low as $10,000.’
That sounds fair. But it’s not without its risk.
Borrowing money against your property could potentially cause financial difficulty later in life.
With the biggest culprit being the interest payable on the amount borrowed. And the longer you hold the loan will increase the compounding of interest.
That’s a debt against your primary residence. I’d often shy away from that.
I know some financial planners still recommend taking out a loan against a primary residence.
Heck, I’ve had friends who‘s advisors suggested to fund a geared stock investment portfolio this way…they did it…that’s a strategy that gives me the shivers.
This gold mine is untapped
Anyway, right now you may be sitting on an absolute gold mine.
Sydney’s exclusive harbourside properties are valued at $4.7 million. The average super balance is around $200,000.
Instead of taking out a reverse mortgage on your property, maybe you should just consider the option of selling and downsizing.
Of course, it’s totally up to you. Just know what you’re getting yourself into before you jump into this trend.
Until next time,
PS: In a brand-new report titled ‘Where to Invest in Australian Real Estate in 2020’, Callum Newman reveals the secret that very few real estate investors know about the REAL driver of property values. View it here.