Finance solutions for retirement

Australia's population is ageing. As the average age of those purchasing (and paying off) a home continues to rise, people are carrying more debt into retirement than ever before. For brokers, this can create a challenging situation: while they have a potential customer base looking for help in funding their retirement and the care they may need, many financial products with ongoing regular loan repayments may not be suitable for seniors and their lifestyles.

However, in such situations, reverse mortgages can be a useful solution. Sharon Yardley, head of operations at Heartland Seniors Finance, believes that having reverse mortgages in a broker portfolio is a neces-sary solution to ensuring the brokerage grows and evolves with its client base and that the broker can assist their customers at every stage of their lives.

To maintain their living standards in retire-ment, Yardley says, most older Australians require a combination of superannuation, voluntary savings and the Age Pension.

“Compulsory superannuation is an important component,” she says. “But on its own it’s not usually sufficient to maintain the living standards of most seniors. It has to be supplemented by the Age Pension – and if the Age Pension isn’t covering the gap, then equity release from their home can be a useful option.”

During 2020 – and particularly amid the challenges of COVID-19 – Yardley notes that Heartland saw continued demand for reverse mortgages. There was also a shift in loan purposes towards debt consolidation and home improvements, which Yardley says are “clear demonstrations” that people are thinking about their finances more, and how they can remain independent during retire-ment, without repayment stress.

“Reverse mortgages allow seniors to release and access their own equity, with no regular loan repayments until the end of the loan term, all while living in and continuing to own 100% of their property and enjoying the benefits of the community, social networks and family memories the home provides,” Yardley explains.

How do reverse mortgages work?

Reverse mortgages allow the homeowner to release equity from their principal place of residence (or investment property or holiday home), and the debt is only repayable when the home is sold, using the sale proceeds from the estate, if the homeowner passes away. Furthermore, there are no regular repayments required – unless the borrower chooses to make them – and the interest compounds monthly until the loan is repaid.

Using Heartland’s regular advance draw-down option, a reverse mortgage can create a steady and reliable stream of income to supplement the borrower’s pension, super-annuation and savings. Payments can be aligned to a monthly, quarterly or annual frequency for up to 10 years, with a minimum draw applying.

“A reverse mortgage can be used for almost anything to make retirement for your client more comfortable,” says Yardley. “This could include a new car, travel, consolidating debt, in-home support and residential aged care. Clients can even use a reverse mortgage for gifting purposes to assist their family.”

In practical terms, many senior Australians may be faced with reduced mobility and need housing with accessibility and safety features. These types of houses – unless homes are adapted and modified to meet the needs of older people – are not necessarily readily available, and therefore modifying the family home may be a better option than selling and looking for a ready-made house.

Such home improvements include making a house age-friendly, for example by installing handrails and ramps and doing bathroom modifications, kitchen renovations and much more. These often require a lump sum of money that many retirees are unable to provide – and a reverse mortgage can help fund this. In fact, Yardley notes that around 47% of all Heartland reverse mortgages are used for this purpose.

“Home renovations also have the poten-tial to increase the value of the property, so when and if they choose to sell the house, they may benefit from this,” she says.

Additionally, Yardley believes the desire of many seniors to remain in their own home has become even more pronounced since the onset of COVID-19.

“With COVID restrictions varying around the country, staying at home has even greater significance,” she says. “Relocating to insti-tutional settings, such as aged care facilities, has raised concerns over losing social rela-tionships, changes in daily routines and loss of independence, and the pandemic has only heightened those worries.”

Better broking outcomes

From a broker perspective, when working with a reverse mortgage there are a number of considerations, Yardley says. As arguably one of the most heavily regulated consumer financial products on the market, reverse mortgages are straightforward in concept but different to a standard mortgage in terms of the documentation required with an application. Additionally, older Australians may become more vulnerable as they age, with vulnerabilities including age-related diseases such as dementia. Elder abuse has also been on the rise, often involving family members or someone close to them.

“It’s critical that brokers pay close attention to be able to identify the signs that someone is vulnerable or may be experiencing undue pressure or influence,” says Yardley. “This includes assessing the suitability of the loan for the customer to ensure it is being used to actually benefit them – this is especially important when a loan is being used to help a family member or is being applied for under a power of attorney.”

Heartland takes its duty of care seriously, Yardley says, and all loan purposes are subject to a suitability test to ensure they are in the best interest of the borrower, and that the loan they are taking meets their current and future needs.

“Heartland’s thorough assessment process works to achieve the best customer outcome and provide specialised guidance and support to brokers every step of the way, from applica-tion to settlement,” says Yardley.

To this end, Heartland also invests heavily in supporting brokers who deal with reverse mortgages.

“We provide support for our brokers in many ways, including access to a suitably qualified and focused broker support team, monthly newsletters with industry and company updates, and monthly training webinars,” says Yardley.

“We also have a dedicated online Broker Portal that contains all the informa-tion required for application; marketing resources to help brokers grow their busi-ness; an online submission platform; and access to our lending system so they can track the status of their applications. We also regularly engage brokers for their feedback so we can grow and improve our services to them.”

Looking to the year ahead, Yardley says Heartland will be covering a whole series of educational topics that will expand on transparency in the reverse mortgage space and highlight not only what is being requested by a client but why information may be needed.

“We want to be able to help seniors finance their retirement for many years to come, and we see brokers as integral to helping us do that,” says Yardley. “We want to be able to provide support wherever we can.”

Every situation is different – this information has been prepared without taking into account your needs, objectives or financial situation. If you are considering a reverse mortgage, we encourage you to understand how it may affect your personal circumstances. Talk to friends and family, speak to professionals, and use the resources and tools Heartland has available. Subject to complying with the terms and conditions of the Heartland Reverse Mortgage, you will not owe more than the net sale proceeds of your home, and you can keep your home for as long as you choose.

Loans are subject to loan approval criteria. Terms, conditions, fees and charges apply. Credit provided by ASF Custodians Pty Ltd (ACN 106 822 780/Australian Credit Licence No. 386781).