Reverse mortgages bring gift of financial security for families during COVID times

Reverse mortgages bring gift of financial lifeline for families during COVID times


The numbers of people using a reverse mortgage to access funds to provide financial support to their family is on the rise. What are the benefits and pitfalls for homeowners to consider?


This is branded content for Heartland Reverse Mortgages.

It's natural in a crisis for families to turn even more to each other for support, emotionally and physically.

For many people among us, the coronavirus pandemic has meant needing to also rely on help from their families financially, as businesses lost income, and jobs disappeared.

More than a year on from the start of the COVID-19 crisis many in the community are still under financial pressures, and with the end of the Government's Jobkeeper support more people are expected to face challenges in making ends meet.

One way senior homeowners have been able to relieve their family members' financial stress has been through the use of a reverse mortgage.

A reverse mortgage lets people unlock the equity in their home and access funds for a range of different purposes - including gifting. It means they could use the value held in their property to provide an immediate financial lifeline to their family, without having to sell.

Australian reverse mortgage providers report an upward trend in older homeowners applying for reverse mortgages for the purpose of gifting. In particular, the applications are for funds to help family members buy a home.

"We have certainly noticed an increase in gifting requests in the applications for reverse mortgages, especially from parents wanting to help their children purchase property," said Sharon Yardley, Head of Operations at Heartland, Australia's leading provider of reverse mortgages.

"This increase could be due to the combination of the recent property boom, coronavirus and families wanting more security. Many parents want to see their children, and grandchildren, get a foot in the property market, and realise a reverse mortgage means they can use the value held in their own home to help them do that."

Helping hand: More older homeowners are using the equity in their homes to provide support to their family at a stressful time.

Helping hand: More older homeowners are using the equity in their homes to provide support to their family at a stressful time.

But while using a reverse mortgage for gifting can be an effective way for people to financially support their family there are some additional risks so extra care is needed.

Responsible lenders have a more rigorous process around reverse mortgage approvals for gifting to ensure the gifting of funds is a suitable use of a reverse mortgage, and that there's no undue pressure being placed on applicants.

"People may be very keen to do what they can to help the younger members of their family but they do need to take care when it comes to making sure there won't be any negative outcomes for them and their own financial situation as a result," Ms Yardley said.

Heartland considers a series of questions when an application is received for gifting. These include:

How much of the funds available is the customer intending on gifting? If it's a large amount, based on the loan amount available or customer circumstances, the customer needs to clearly document how they plan to meet their future needs.

Could Government entitlements be affected for the borrower? If the gift will affect the borrower's entitlements like the Age Pension they need to confirm what the impact will be and show how that will be managed. Heartland ensures applicants have discussed their plans with Centrelink and are fully aware of possible consequences.

What is the purpose of the gift? If the purpose is to support a gift for an investment or business venture the application is unlikely to be suitable.

Does it exceed gifting thresholds? Centrelink imposes regulations that limit the value of assets that people can gift to others. A person or couple could gift up to $10,000 each financial year, or a total of $30,000 over a five year rolling period. Gifts above this limit will be assessed as part of the asset test for aged pension and could reduce or cut off entitlements.

Have they sought appropriate advice? Applicants should obtain appropriate advice on the decision to gift the funds, and it is recommended they also speak to all members of their family so there are no surprises between siblings later on.

If you would like to find out more about using a reverse mortgage for gifting and if it might be a good option for you, contact the team at Heartland Reverse Mortgages on 1300 889 338 or download your free Reverse Mortgage Guide.

Every situation is different - this information has been prepared without taking into account your needs, objectives, or financial situation. If you are considering a reverse mortgage, we encourage you to understand how it may affect your personal circumstances - talk to friends and family, speak to professionals, and use the resources and tools Heartland has available.

This is branded content for Heartland Reverse Mortgages.