Reverse mortgages vs retirement villages
Having been involved in the Retirement Village Industry from 1983 to 2000, I witnessed many changes and growth in the Industry. However, despite that growth, only about 5% of those over 65 yrs of age actually make that accommodation choice.
It is a choice that is "really right" for many people, however it comes at a significant cost. In most villages a resident will lose some 30% of their capital or more after 10 years residing in the village. These monies, known as deferred management fees, are taken off the resale price of the unit, together with refurbishment costs and the costs of resale.
When you add the costs of moving out of the family home or unit, this can run into hundreds of thousands of dollars.
What retirement village residents are doing, is foregoing a significant amount of capital to enhance their lifestyle.
There is now an alternative product which was not available when retirement villages were becoming popular, and that is the "reverse mortgage".
The senior homeowner can now make a conscious decision to forego some capital ( or use some of the capital in their home ) to enhance their lifestyle, without moving out of the family home. For example, a pensioner homeowner could, subject to conditions, elect to receive an extra income of $1,000 per month over the next 10 years. If the interest rate was constant at 10% per annum, the debt accrues to about $205,000 at the end of the ten year period.
That amount would be very comparable to the capital being lost to many residents who choose the retirement village option. Of course, the above does oversimplify the situation as there are numerous variables to take into account for each individual or couple's circumstances. However, the Reverse Mortgage or Seniors Equity Loan deserves serious
consideration by senior homeowners who need access to additional money to enhance their lifestyle.
Michael F
[b]Editor's Note: [/b]Reverse mortgages need to be treated with extreme caution. Do not consider signing anything until you have received independant financial advice.
I have always treated reverse mortgages as a trap for the unwary.
I have no surviving family, enjoy living alone and guard my privacy. I dont think I would like the 'closeness' of others in a retirement complex and, health permitting, I would like to see out my days in my own home, which if needed repairs would then be serviced by a reverse mortgage.
The main problem I can see is that if my health fails and say I need nursing home care much later down the track and the reverse mortgage has chewed up my asset, what happens then?