Should You Use A Reverse Mortgage To Fund Aged Care?

Funding aged care can be stressful for many older Australians, especially if they haven’t saved as much as they’d hoped to. But there is an option available that might help you to pay for your portion of aged care costs while hanging on to your primary residence longer: a reverse mortgage.

Reverse Mortgages and Aged Care

Reverse mortgages can be very helpful in some situations, but they can be damaging in others, so it’s vital that you carefully examine your individual situation and ask plenty of questions. There are different kinds of reverse mortgages. Therefore, it’s important to examine the details of each offer and analyse the situation carefully. 

For example, some lenders will want to offer you a large lump sum from the value of your home, but most people will find themselves in a better financial position when they receive their assets a little at a time. Using your mortgage to pay a RAD will reduce your asset levels, and this could possibly increase your Aged Pension. So in this case, a reverse mortgage could help you pay for care costs while at the same time excluding your house from means testing.

Ask About Aged Care Fees

If the margin of benefit is thin, you’ll want to be very careful about using your home equity to pay for aged care. Look closely at all the fees, commissions, and margins before you decide to take the plunge with a reverse mortgage. There’s a possibility that your equity could be used in a more effective way, depending on how much the reverse mortgage costs. 

These calculations can be complex. You may find a lot of peace of mind by reaching out to a financial adviser who is well-versed in the issues surrounding aged care, reverse mortgage, and the Australian pension system.

Timing

No one knows exactly how long they need to plan for. Even when you use family longevity as a starting point, who knows? You might live 20 years longer than everyone else in your family. Because of this big unknown, it’s best to work with conservative figures. What terms can be offered by the reverse mortgage company? You certainly don’t want to agree to a short term and then run out of funding while you’re still living in aged care. Work with an adviser to come up with a reasonable, safe plan regarding paying for aged care with a reverse mortgage.

Inheritance and Aged Care

If you wanted to leave a substantial inheritance to your children or to a charitable organisation, you might think twice about acquiring a reverse mortgage to pay for aged care. Discuss this option with your beneficiaries so that everyone understands the ramifications of the reverse mortgage on inheritance. 

To learn more about reverse mortgages, including how a reverse mortgage can help you to pay for the costs of aged care, contact us at Altus. We can help you untangle the many factors surrounding your financial planning and help you to create a straightforward, workable plan.