Q. As a Baby Boomer who took on a mortgage in 2003, and then increased it to purchase a vehicle in 2006, I find myself at 56 with no funds with which to maintain my property, I have a few thousand dollars in my redraw facility, but it costs $30 per redraw to access. Should I switch to an interest-only loan and change to a line of credit?
I have enough super upon retirement to pay out my mortgage but not much more, I can't get any help from the bank, which holds my mortgage. They've attempted to pass my questions onto a local advisor but I've received no response.
A. The first thing I suggest you do is to see a qualified financial planner to get some expert advice on what can be done to ease or improve your situation both now and for retirement, For example, they may advise that selling the property, investing the proceeds and renting a smaller place might improve your situation. In any case, it would be good for you to know what options are available to you. Without having a better understanding of your existing loan, income, value of property and ongoing financial needs, it is difficult to make any meaningful recommendations. This said, here are some suggestions you might consider.
There are some institutions that will provide reverse mortgages or other products which can free up equity in your home, These equity release type products are targeted at the over-55s/60s who have a lot of equity in their home but little disposable income or cash, Homesafe (Bendigo Bank) is available to over 60s and it's different to many products in that Homesafe actually acquires a share in your property, which frees up some capital for you to maintain your home or otherwise enjoy. Check out our article on page 64 for an in-depth look at reverse mortgages.
Cash flow is your immediate problem and switching to an interest-only loan would alleviate things for you to some extent. Even though you might be in interest-only mode, most lenders do allow you to make additional repayments of principal if you wish to do so. Alternatively you could renegotiate a longer term on your existing loan (longer term, lower monthly repayments) or split your loan so that it is part interest-only, part principal & interest. Speak to your bank about your switching options. If they wont oblige or don't phone back - then check out other options through a reputable broker.
As you noted, a line of credit could work for you but you must be able to service any additional borrowings and if you're undisciplined then the loan can blow out over time and erode the retirement 'equity' in your home. Redraw is often a standard feature in the cheapest loans and many lenders offer a number of free redraws per month. Unless you're constantly using the redraw the fees shouldn't have a huge impact.
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