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Active Retirees : Active Retirees Jun-Jul
Active RetireesTM | 37 FINANCE THE SMART MONEY A retiree looking to access home equity faces many complications and risks. The Australian Securities & Investments Commission (ASIC) recommends seeking independent advice when considering your options. ASIC ASIC offers information for retirees on selling the family home, including the impact on social security payments, alternatives to selling, an independent guide to using equity in your home and information on reverse mortgages. Visit the MoneySmart website to find out more. W: www.moneysmart. gov.au SEQUAL If you’re considering a reverse mortgage, ASIC also recommends finding an accredited consultant through Senior Australians Equity Release (SEQUAL), the peak body for the equity release market. W: www.sequal.com.au 2Borrowing Banks and financial institutions also offer ways to access equity. The conventional method is to borrow against home equity. However, Raiss believes that banks currently look favourably on serviceability in their lending decisions. That is, they prefer borrowers to have an income that can service the loan, rather than an asset. “It’s much harder for retirees to borrow money,” he says. “Most aren’t earning an income.” Reverse mortgages, borrowing against home equity for a lump sum, line of credit or income stream, are increasingly popular. Instead of the borrower making regular payments, the interest and fees are added to the loan balance, which is paid off when you die or sell the home. They aren’t always the best choice though, in Cunningham’s experience. “I really like to stay away from reverse mortgages,” he says. “They’re really expensive. I don’t feel that the client gets the best bang for their bucks. The banks get a bang for their bucks. I’m not a fan of them at all.” The Australian Securities & Investments Commission (ASIC) has warned that reverse mortgages, depending on individual circumstances and how retirees use the money received, could also impact Centrelink payments. 3Using the family Cunningham has seen retirees sell their properties to their children and then rent them back. Because they don’t have to pay costs such as agents’ fees they could sell for as much as 10 to 20 per cent below market value without losing out financially. “The kids get access to the property now and benefit from the property going up in value,” he says. “If the parents are still working they can also look at putting some of the money from the sale into super.” Raiss says some of his clients borrow money from relatives and, in return, give equity in their home. One option is a contractual will, which guarantees that the relative who lent money will end up with a percentage of the property. “A normal will can’t do that,” Raiss said. “It can be contested.” 4Renting Some of Raiss’s clients rent out their homes. For example, they may live in an $800,000 home that could earn $700 per week rent. If they rent a smaller place to live in they could live off the difference. It could be several hundred dollars; “not a bad income on top of everything else,” says Raiss. •• If your actual income is low enough you won’t pay tax anyway. Therefore, there is no reason to set up a potentially costly SMSF.
Active Retirees Aug-Sept