Will a reverse mortgage lump sum affect the Age Pension?

Can Diane gift her reverse mortgage lump sum without affecting her Age Pension?

reverse mortgage

Diane would like to take out a reverse mortgage to help her children financially but is concerned that her Age Pension will be affected, despite being told it won’t be.

Q. Diane
I am thinking of getting a reverse mortgage on my home, mainly to help my children and maybe get a new car. I have two grandchildren who require dental work and a daughter who needs surgery. I did ring Centrelink to see if it would affect my Age Pension and was told it wouldn’t if most of it was going to my children. I am still worried, though. What do you think?

A. Before you consider a reverse mortgage product, you should consult an independent financial advisor.

As we were not party to the conversation you had with Centrelink, we can’t comment on whether the advice you were given is correct. However, as a general rule, any lump sum you receive from a reverse mortgage is considered an exempt asset for up to 90 days.

Although exempt as an asset for up to 90 days, the lump sum will be considered a financial asset and deemed to earn income until it is spent.

If you purchase a car, this car will be assessed as an asset from the day you take ownership.

In regards to gifting, you can gift $10,000 per financial year up to $30,000 over five consecutive years, with any excess amounts being assessed for the full five-year period.

You should confirm the above with a Centrelink Financial Information Services Officer (FISO) and specifically ask if the money you give to your children will be classed as gifting.

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    COMMENTS

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    TREBOR
    25th Sep 2017
    10:47am
    Now you see the cunning in the 'fund your own retirement using your assets' argument put forward by the overpaid government grubs - you're a free person for ninety days, then they cop you....

    Reverse borrow $150k and they'll slug you on the 'deemed interest' on it.

    Always plenty of ways to skin cats in retirement when you hold the reins of the propaganda machinery, have overpaid 'think tanks' to come up with all these ideas and work out the nuts and bolts, and have the hands on the money supply.
    KSS
    25th Sep 2017
    12:38pm
    I would have second thoughts about this too under these circumstances. Is this setting up an expectation by the daughter (or other family members) that everytime money is tight, Mother will dip into her assets and bail them out? If so what happens when that expectation exceeds the value of the home?
    tams
    25th Sep 2017
    12:51pm
    Under deeming calculations, there is no reduction to the pension entitlements when gifting is less than $150,000 and there is no other income/assessable assets. (although it is assessed at the $10,000/$30,000 limits)
    The amount which can be accessed through a reverse mortgage is based upon age and the value of the home(or investment property). At the age of 70, the maximum is 25%.
    Most home owners considering gifting would not get anywhere near 25%
    KSS
    25th Sep 2017
    1:01pm
    I think your answer was meant for TREBOR tams.

    I think it is one thing for someone to use the equity in their home to fund their own retirement, it's quite another to bail out family members who can't balance their budgets. Do it once and there is an expectation that it can happen again.
    TREBOR
    25th Sep 2017
    5:43pm
    The price of liberty is eternal vigilance and a very extended picket line to trip the wire.... let them know they can't come here...
    Rae
    25th Sep 2017
    2:19pm
    Children can get dental work through the government and medicate should cover surgery. You'll end up putting your own home at risk if you don't have savings how will you repay the interest on a reverse mortgage. Compound interest is a bitch and seems only to work in the banks favour these days. Let your daughter get a personal loan if she needs it.
    Dave R
    25th Sep 2017
    2:39pm
    Seems suss as kids get free dental through the school clinics plus a thousand to spend at a private dentist. Adults can also get cheap or free dental treatment at the University dental teaching clinics. The wife and myself have a pension card and get free treatment at JCU Dental in Cairns. An excellent facility with excellent standards of care.
    leek
    25th Sep 2017
    4:32pm
    Dan the average braces treatment cost about $8,000 over a 2-3 year period, and often you need to have surgery to remove excess teeth which is an addtional cost from a surgeon. Pretty sure you cannot get the free treatment for this.
    Priscilla
    25th Sep 2017
    3:22pm
    Reverse mortgages are bad news. The debt will grow astronomically and you will end up owing everything and owning nothing.
    tams
    25th Sep 2017
    4:01pm
    Here is one of those comments made without facts.

    Priscilla, reverse mortgages are not for everyone, like those retirees fortunate to own their own home (a form of enforced savings like superannuation) and other assets.

    Let's take an example and see if older Australians will "end up owing everything and owning nothing"

    A couple aged 75/73 own their own home valued at $700,000. Their super has run out. For this example we will use an interest rate of 8.5% (currently 6.00 - 6.37%) and an average growth of 3% (as suggested by ASIC).

    For the next 10 years they wish to supplement their pension with an additional $800 per month. - note there is no effect on their pension.

    At the ages of 85 and 83, their home is forecast to be $940,000, their debt is $151,000 and their net equity would be $789,000.

    For the amount of $96,000 in borrowings and $55,000 in interest, they have assumed a lifestyle which meets their needs, have sufficient funds for aged care and leave an inheritance with higher dollars than today.

    Some retirees like yourself may be able to live on the age pension or have sufficient savings to meet retirement needs, but for others, it is important to ensure the proper facts are provided, they are adequately informed and not put off by incorrect information or statements.


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