Those Baby Boomers are at it again! It’s nothing short of unconscionable! A report in this morning’s Australian newspaper trumpeted that “Seniors aged over 70 are spending $1bn of their children’s inheritance each year by cashing out equity in their homes through reverse mortgages, according to a report from credit reporting company Illion.”
Dearie, dearie me. It doesn’t matter what we Boomers do, it’s all wrong. For those who don’t know, a reverse mortgage is when you take out a loan on your home using the equity you’ve acquired over time. Government agency Money Smart explains it this way.
“A reverse mortgage allows you to borrow money using the equity in your home as security. If you’re age 60, the most you can borrow is likely to be 15–20% of the value of your home. As a guide, add 1% for each year over 60. So, at 65, the most you can borrow will be about 20–25%. The minimum you can borrow varies, but is typically about $10,000.
Depending on your age, you can take the amount you borrow as a:
- regular income stream
- line of credit
- lump sum, or
- combination of these”
Obviously, the loan has to be repaid and that decreases the value of the kids’ inheritance when you turn up your toes. That’s the $1bn a year that isn’t going towards paying off Millennial debts.
But let’s look at this a little more closely. You can’t reverse mortgage the total value of your property. Depending on your age and certain other factors (see link above) you can borrow between about 15% to about 40%. Let’s say you reverse mortgage your million dollar property at 25%. That’s $250,000. It still leaves $750,000 and even if it’s repaid (plus the bank’s rates and charges) after your demise the kids will still stand to inherit close to half a million or so. That’s rather better than bugger all.
It has been made abundantly clear that we Baby Boomers are a burden on the community, expecting pensions and health care. I wrote about that in more detail in Baby Boomer Bashing. But although we get health care because we’re (um) old, in Australia eligibility for aged pensions is means tested. If you have too many assets, your pension entitlement is reduced. At the moment, the value of the family home is not included in the assets test. If it were, then an awful lot of people over sixty-five would not be entitled to a pension at all. It hasn’t happened yet, but it’s one of those suggestions hanging over our white-haired heads, like the sword of Damocles.
It has been suggested by more than one Minister of the State that those selfish old farts occupying houses worth millions in inner-city suburbs should be obliged to sell off that asset to fund their retirement. Of course, the money they make from the sale will be included in the assets test and they won’t be eligible for a pension. But perhaps that’s the idea?
And then where do they go when the house they’ve lived in for decades is sold? To a retirement village? A home unit or apartment kilometres away from the area they know? (They wouldn’t be able to afford to buy where they live now and still have enough to live on.)
Most of us have been there, done that, forty years and more ago. Bought a little house out in the sticks with no public transport, no schools, no shops. The cities have expanded since then and that little three-bedroom house with a big yard but no air conditioning, let alone a theatre room and an outdoor kitchen, has now become prime real estate. Don’t believe me? Look at the asking prices for old terrace houses in Sydney, or homes in South Brisbane or St Kilda in Melbourne.
For some people, a reverse mortgage is a great idea. They can get some cash without having to move out. They may not have earned a lot of superannuation in their working lives. Cash enables people to take holidays, or renovate their property. And whose business is it, anyway?
Credit reporting company Illion can take a running jump off the nearest cliff.
So, to put it in a nutshell, credit reporting company Illion can take a running jump off the nearest cliff. How dare they suggest that Baby Boomers owe their kids anything at all? I don’t know about you but I inherited nothing from my parents. My father died when I was sixteen and my parents never owned a home – or anything much at all. Pete’s situation was similar. What we have we worked for, and how we wish to use our assets and cash is up to us.