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The latest data released by the Mortgage & Finance Association of Australia (MFAA) has revealed that 71.8 per cent of all new residential home loans were written by mortgage brokers between October and December 2023.
This new benchmark not only further consolidates the role of brokers as an integral part of the mortgage lending value chain, but shows continued erosion of the bank’s role as trusted advisers when it comes to the home loan needs of Australian’s.
The value of loans written by brokers for the period also rose during the December 2023 quarter, with the nation’s brokers settling $94.06 billion in home loans, revealing a 5 per cent year-on-year increase. According to the MFAA, this was the third consecutive period of growth since settlement values dropped to $78.59 billion in the March 2023 quarter.
In this week’s newsletter, we look at reverse mortgages which whilst not necessarily relevant to your clients, may form part of a strategy for parents looking to provide their children with funds for their first home purchase.
A reverse mortgage is designed to help retirees access equity in their homes without needing to sell or downsize. Unlike traditional mortgages where borrowers make regular repayments to the lender, with a reverse mortgage, the lender makes payments to the borrower, either as a lump sum, regular income stream, or a line of credit, using the equity in the borrower’s home as security.
Pros of Reverse Mortgages:
Supplement Retirement Income: Reverse mortgages provide retirees with a means to access the equity tied up in their homes, offering additional funds to support their retirement lifestyle, cover medical expenses, or finance home renovations.
No Repayments Required: Borrowers typically don’t need to make repayments on a reverse mortgage until they sell their home, move into aged care, or pass away. This can alleviate financial strain for retirees on fixed incomes.
Retain Home Ownership: Reverse mortgages allow retirees to remain in their homes while accessing funds, providing financial flexibility without the need to sell or downsize.
Cons of Reverse Mortgages:
Accumulating Debt: As borrowers receive payments from the lender, interest accrues on the loan balance, potentially leading to a significant debt over time. This can erode the equity in the home, leaving less for heirs or other intended beneficiaries.
High Costs: Reverse mortgages often come with higher interest rates, fees, and charges compared to traditional mortgages. These costs can diminish the overall benefit of accessing home equity.
Impact on Pension Eligibility: Funds received from a reverse mortgage may affect eligibility for government pension benefits or aged care subsidies, as they can be considered as assessable assets or income.
Complex Terms and Conditions: Reverse mortgages can be complex financial products with various terms and conditions. Borrowers should carefully review the contract, seek independent financial advice, and consider alternatives before proceeding.
In summary, while reverse mortgages can offer financial relief and flexibility for retirees, they come with potential risks and drawbacks that borrowers should thoroughly understand and consider before entering into such an arrangement.
Variable
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR.
1 Year Fixed
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR. At the end of the three year fixed period, the borrowers interest rate will revert to a standard variable rate for the life of the loan.
