Reverse Mortgages for Aged Care

As we age, it may become necessary to receive some extra help with day to day living. For some, this may be help with tasks around the home. For others, it may be help with personal hygiene or medical care. In some cases, an elderly person who now finds themselves alone may just need some extra company each day to make sure they are doing well.

 

Many people who find themselves in this situation may opt for an aged care home. These homes are specifically designed to care for the aged in a caring and dignified manner. These homes must meet specific guidelines and be approved by the Australian government to operate. This ensures that the residents always receive quality care.

 

Aged care homes vary in the amenities they offer and the care levels they provide. Some homes even have the ability to take in individuals on a temporary basis. Known as respite care, this type of aged care can help after a hospital stay for recovery or as a way to provide home based care givers a little time to take care of business or relax. When searching for aged care for your loved one, make sure you review all of their services and amenities to ensure they are right for your loved one.

Transitioning to Aged Care Living

Transitioning to aged care can be a little frightening at first. It is a new place and the change can be emotionally challenging. This is especially true when it comes to placing a spouse into aged care while the other remains at home. Dementia or other issues may require that one spouse receives extra care for a dignified life, and the separation can be difficult.

 

Most aged care facilities have trained counsellors that can help each member of the family adjust to this new living arrangement. Many people will transition with ease and appreciate the care they are receiving. Once established, the resident and the other family members will be well pleased with their choice.

Covering The Costs of Aged Care

A majority of aged care costs are covered by the Australian government. Everyone, regardless of means, has the right to dignified aged care in Australia. However, when a person enters into aged care, an assessment is completed on their income and assets to determine if the individual can contribute to their care.

 

According to the Australian government, the average cost for those found able to help pay for care averages about $55.00 per day. This can vary based on personal means and the types of care necessary at the aged care center. Costs for aged care treatments are reviewed bi-annually to account for differences in care needs, cost changes, and differences in income and asset levels.

 

This daily cost is in addition to any and all coverage being provided by the Australian government. It should be understood that this cost could be much higher to individuals that need extensive care or who do not qualify for certain coverages through the government programs.

 

For many, this may seem very expensive, especially if there is a remaining spouse or family member who is still living in the family home and needs money for everyday living. There are options, however, that can help with these issues.

 

Of course, there are many organisations that are in place to assist pensioners with financial issues, including those concerning aged care facilities. Any help that can be found through these entities is always encouraged. Those making inquiries into these programs are also encouraged to seek other forms of help that they may qualify for, such as help at home for the remaining spouse or family member.

 

However, for those who may not qualify for help through these organisations, there is also another alternative to help them financially. The remaining spouse or family member can apply for a reverse mortgage to cover the expenses of aged care.

Understanding Reverse Mortgages

Reverse mortgages are also known as equity release loans. These loans are designed to help pensioners use the equity in their homes to help with living costs. Money can be accessed in either lump-sum payment or in monthly draws. The monthly draw can be very effective in helping to cover aged care costs.

 

Only a limited amount of banks are offering reverse mortgages at this time. Since every bank will have different terms and conditions of the loan, it is important to shop around and find the right loan program for your needs. Interest rates will also vary among lenders.

 

The loan amount will depend on your age and the amount of equity that you have available in your home at the time of the application.

 

Once the loan amount has been determined, the lender will grant the loan and monthly withdrawals can be made against the equity of the home. This does not impact any pension or other form of monthly income that the applicant currently receives. Income levels are not considered during the application process because repayment of the loan is not necessary

 

Reverse mortgages do not have to be repaid unless the owner of the home desires. This is a secured loan against the equity of the home and repayment is made automatically when the property is sold.

What are the Terms of a Reverse Mortgage?

In most cases, the bank assumes ownership of the property once the owner has moved off the property permanently or has passed away. The bank then sells the property to recover the amount of the loan. However, many lenders offer an option for borrowers to repay the reverse mortgage if they desire. If the loan is repaid, the lender has no rights to the property. It should be noted that if the lender sells the home for more than the debt that is owed, the estate will receive all of the extra proceeds from the sale.

 

All lenders will require that:

 

  • Owner of the property remains in residence to keep accessing the equity. Temporary hospital stays do not qualify as being not in residence.
  • Owner must keep insurance on the property at all times. This protects all parties involved. 
  • Owner must keep property maintained and in good repair. Damage to the property could cause the loan to be recalled.

 

Depending on the lender, there may be additional qualifications necessary to obtain a reverse mortgage on your property.

What if Home Values Drop?

All Australian reverse mortgages have a “No Negative Equity Guarantee” as part of the contract. What this means is that the lender has already made an adjustment within the terms of the loan to account for any potential loss in home value due to economic crisis. This ensures that borrowers will not go into more debt than their home can repay. It is a protection that helps the borrower protect the rest of their estate.

 

This law went into effect in September 2012 after the world economic crisis caused home values around the world to drop significantly. In an effort to protect its citizens, the Australian government made it mandatory for lenders to abide by this guarantee. Borrowers should make sure that the lending institution is offering this guarantee.

Additional Information About Reverse Mortgages

When you are applying for a reverse mortgage, it is very important that you understand how the payments are distributed. Taking a monthly stipend will be more beneficial to your cause than taking out a lump sum. Interest is charged on these loans, but only on the amount that has been borrowed. By taking the money out over time, you will reduce the overall interest burden on the loan. However, speaking with a financial adviser is always recommended so that you receive the greatest benefit from your loan. Additionally, seeking legal advice or estate planning advice may help you make a more informed decision concerning your reverse mortgage.

Aged Care Overview

When it comes to aged care, you should plan on the costs rising over time. Rising costs for supplies and other services should be expected, especially as the resident advances in age. Over time, additional care will be necessary to help the resident. This should be taken into consideration when making financial plans to pay for aged care.

 

The transition into aged care does not have to be devastating emotionally or financially if done so with great care and consideration. Good planning can help this change take place with ease, and all members of the family can live comfortably and with dignity.

 

 Disclaimer: This article is to inform & educate and of a general nature. It should not be taken as financial advice. Please Consult your Financial Planner or Accountant for advice. 

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Notices
The following homes have non-compliance notices or sanctions issued against them by the Department of Health:

Ny-Ku Byun (QLD) (Expires 01/12/2015)
Ngooderi House (QLD) (Expires 01/12/2015)
Kukatja Place (QLD) (Expires 01/12/2015)
Kuba Natha Hostel (QLD) (Expires 01/12/2015)
Hillside Haven Aged Care Facility (QLD) (Expires 01/12/2015)
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