Avoid a reverse mortgage while there’s still super

I AM 70, single on a full pension, have $200,000 in superannuation from which I receive a $19,000 annual pension. I have approximately $10,000 in cash in case of emergency. I own my home worth $1.2 million.

I am using my superannuation for holidays, small renovations to the house and I mentioned to my financial adviser that instead of taking money from my super, which is earning around 9 per cent, it might be advisable to have a line of credit, paying it all off when I sell my house. If I used $100,000 over 15 years, I would lose about 8 per cent of my house if rates stay at about 6.5 per cent. My financial adviser thought this was not a good idea, though that may be because his fees will reduce!

In my view you are too young for a reverse mortgage – and there is no guarantee that your super will continue to earn 9 per cent and the reverse mortgage rate stay at 6.5 per cent.

I think you are better to maintain the status quo, and think about a reverse mortgage when your superannuation has run out. Also, you may find as you get older, that downsizing your home, or even moving to a retirement village becomes a better option than staying in it. MY elderly parents live in a regional area and would like to move to the city, to be near my brother and me and our families. They own their own home and my father has a super income stream and a small part-pension for my mother. The sale of their house will leave them well short of purchasing even a small property here. What is the best way my brother and I could go about contributing to their purchase of a house? My parents will not consider another mortgage and would not be comfortable with receiving money from their children unless we can show them we will have some sort of benefit down the track (that is less important to my brother and myself than having them here, happy and settled).

As I see it there are two options – you and your brother could buy a property, take out a mortgage if necessary, and charge your parents rent. It would need to be a fair market rent but could be on the low side in view of the fact they would be good tenants, and you would have no vacancies. The drawback is capital gains tax on sale.

The other option would be for you to take out a loan if necessary against your own properties and give your parents an interest-free loan or gift to enable them to buy a place of their own.

I prefer the second option because, if your parents rented, the proceeds of their home would be a financial asset and would almost certainly cause them to lose at least part of their pension. It’s important you have open communication along the way, and take advice, as well, in view of the estate planning and Centrelink implications involved.

Noel Whittaker is the author of Making Money Made Simple and other finance books. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: noel@noelwhittaker.com.au

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