My parents are retired and living in SE QLD, in their great house, fully paid and not a cent oweing on the property. Unfortuntaley, they’re now in their mid 70’s and they would like to see if they can leverage a small amount of the equity that they have in their property to have a big holiday sometime in the next 1 – 3 years. Now, Im not sure if this is the right thing to do – hence, why I am posting this on the forum as I’d appreciate some guidance / thoughts.
Their property is worth approx $300K. They only own this proerty and only have the pension and as we all know the cost of living (ie Fuel, Rates tc) continue to grow and the pension is no longer enough to allow them to save for their special trip. They have no other investments.
My dad just wants $20-40K so they can travel to Canada – its been their life-long dream. And then, have some cash left over just to have to spend on themselves. He has this great house, but doesn’t have any options to potentially access the equity.
Is there a safe, secure way to access equity and then pay that debt back as part of the estate? Or, does anyone else have any other ideas?
I’m not saying this is the right thing to do, but I want to help them and give them a few options (if any) as the Canda trip would just make them so happy. Hey, at mid 70’s – they deserve such a treat. I have said that they should try and hold on to the property in SE QLD. It’s in a high growth area and would still deliver some solid capital gain over the next 5 – 10 years.
Appreciate anyones thoughts on this.
BM
If they were my parents (and they aren’t) I would recommend they go to Canada as part of the SKI club (Spend the Kids Inheritance).
Let’s face it, at that age they’ve only got probably another 10 years left in them, maybe 20 if they are good and healthy. Sitting on the property for equity gains doesn’t help them in the slightest if they don’t have the income to service a mortgage (now or then).
They could either:
Sell the house and move somewhere smaller.
Sell the house with a lease condition stating they would lease the house back (popular these days) eg: sell for $300,000 lease back for $280/week. Put the resultant funds minus $50k (for their trip) in an interest bearing amortising annuity (like a cashbond, I’m sure a financial advisor could come up with a good one). That would last them a good 4-5 years (or longer if they got pension on top) before reverting to just the pension again.Or a “reverse mortgage”. You can get lots of info on reverse mortgages on the net if you do a simple search. Essentially it’s a mortgage with limited recourse built in (the heirs don’t have to pay out the debt, the house covers it). Talk to a financial planner / advisor about it.
If your folks are 75 now, in 5-10 years when the house is worth more they’ll be 80-85 years old and may have trouble getting Canada regardless how much equity they have in their house.
They should (imo) live it up and enjoy themselves as much as they can before they shuffle off this mortal coil. They can’t take the house with them.
I aggree with surreyhughes. What was the reason for buying and paying off the house for in the first place – to leave it to the kids?
Kids would be better off if they were given knowledge in their early years, as opposed to an assest in their later years.Remember, if you are going to borrow money for a trip, you could also borrow money to pay the interest bill. Also, the house will double in value to $600,000 in 7-10 years, making up for any spending spree. And why not do a house swap with someone in Canada (free rent) and stay for longer. Go for it. Its time to reap the rewards.
Thanks all. I completely agree with your sentiments – I am not after the house for my inheritance. I hope we find a solution where they can go and enjoy their years and their money.
Spend up – thats what I would want to do in mid 70’s.
I have just found a web-site: http://www.seniorsloans.com.au and now understand what a reverse mortgage is. Has anyone had any experience in dealing with this company?
Thanks again,
Originally posted by mitm:Also, the house will double in value to $600,000 in 7-10 years, making up for any spending spree.
Of course it will.[blink]
F.[cowboy2]Regarding reverse mortgages, check out…
http://www.mortgagepackaging.com.au/tma/index_files/reverse_mortgage.htmI also know a guy who specialises in reverse mortgages. That is all he does!!! I would strongly suggest using him as he deals with the various lenders in the market and can direct you to the most suitable product. He is also a financial planner. These loans have very strict requirements with regards to independent advice.
Email me if you want his details.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksHaving spoken to quite alot of people in their 70’s and older in the past couple of months gleaning as much info as possible off them, I’d suggest that applying for something like a reverse mortgage or accessing their equity in their home would freak them out completely. They were all brought up in the era of ‘work hard, pay off your house, retire on the pension’.
If they went down some path of a fancy financial structure all they would do is privately stress themselves witless, as most elderly people do when they owe money – especially if they have no conventional way of paying it back.
If they were my parents, I’d arrange finance myself (however that could be achieved – cash / loan / L.O.C whatever) and then let them go on the holiday of their lifetime…then they’d actually enjoy it, knowing full well they can return home with nothing owing.
You wouldn’t need to demand some later payback either…you’ll likely receive a share of the growing equity anyway if you are their son.
Think of the expense as payback for all of the years they fed / clothed / wiped your bum and nose when you were growing up and you were dependent on them.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
This is exactly why it is important to use someone experienced with dealing with the elderly. They often freak out.
The problem is, not all nice kids can afford to repay a loan for their parents.
A reverse mortgage, when explained properly, does not freak them out. It does not require repayment while they are alive or living in the home and the left over equity still goes to the children. There are very strict guidelines regarding these loans.
There is nothing fancy about a reverse mortgage. It almost operates like a capitalising Line Of Credit and can be either fixed or variable.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksRob,
I think you’ve got your “30 yr old up to speed finance broker / advisor” hat on.
Try putting your “75 yr old – only had one mortgage in my life, taken out in the 50’s and paid off in the early 80’s” hat on.
Explaining to a 70 yr old that “There is nothing fancy about a reverse mortgage. It almost operates like a capitalising Line Of Credit and can be either fixed or variable.” [blink]
Do you honestly believe that explanation would give comfort and explain clearly to a 70 yr what they were getting in for ??
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Not at all Dazz but I thought it would explain it sufficiently to you.
Why to you think I am suggesting using an expert in the field of Reverse Mortgages. The guy I know does regular presentations (not seminars!!!) to the elderly so they have a better understanding of the product.
To explain it in layman’s terms would go something like this…
You borrow money secured by a small percentage of your home. Unlike a loan you would be familiar with, you do not have to make repayments as the interest is added to the amount owed. The lender is repaid when you pass away or move into full time care following the sale of your home. They recover the initial loan amount plus any interest that was added and any additional funds above what is owed at that time is passed on to your estate.
The interest rate can be either fixed so you know what the annual increase will be or variable which will change with interest rate changes. The amount owed can never exceed the property value as the lender cannot recover more than the property value at the time of sale. You can also protect a percentage of your home value to pass onto your estate.
The growth in your property value should also help to keep the property value higher than what is owed at any point in time. Remember, you are only borrowing a small percentage of the property value at commencement so it would take many years of interest rates being higher than property growth to eat into the equity so as to leave nothing for your estate. This is unlikely to occur.
______________________I don’t know about your parents, but mine are elderly and have no trouble understanding this explanation. Elderly does not equate to stupid.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential Links
You must be logged in to reply to this topic. If you don't have an account, you can register here.
