Reverse mortgages are helping people get into aged care and more brokers are needed to specialise in it.
While the typical reverse mortgage might be associated with pensioners wanting to purchase a new car, renovate their homes or pay for medical bills, IMB bank has tailored its loan to focus on aged care.
When somebody moves into aged care they either have to pay a refundable accommodation deposit (RAD) or daily accommodation payment (DAP).
The RAD is given back to the estate when that person dies, but in Sydney or Melbourne this can cost around $700,000.
The DAP is non-refundable and is calculated by dividing the RAD by 365 and multiplying by 5.77%, which is the current Maximum Permissible Interest Rate. For a $700,000 RAD, this would be $111 a day.
These costs simply cover the entry to the facility and there will be extra costs associated with the care and services provided. Depending on the resident’s assets and income these can be over $50,000 a year.
Martin Lynch, a reverse mortgage and aged care specialist at IMB Bank, said he has seen costs rising to as much as $2million, although a large percentage of this would be the RAD which is returned to the estate, but there remains the issue of how to fund it in the interim.
The problem with a traditional reverse mortgage was that the loan-to-value ratios were too low for these amounts. IMB adjusted this by offering a five year term and if this needs to be extended the bank will revalue the property.
Encouraging brokers to consider reverse mortgages for aged care, he added, “It’s getting out of the traditional perception of reverse mortgages to be something people use to fund a car or a holiday and it’s more a later in life stage where it can really help.
“Most families only tend to deal with this once. They suddenly find out about this wide world of aged care and all these fees. So this product gives them options rather than just selling their house, either just as breathing space so that you’ve got time to sort that out or if you want to keep a property in the family this gives you the option to enable that.”
The money can also be used to cover other costs, such as covering the costs of property maintenance, as the property can be rented out.
While the average age benefiting from this type of reverse mortgage is around 77, brokers would be dealing with their powers of attorney who are usually between the ages of 45 – 65.
Lynch said that for any broker with a customer base between those ages it is easy to start up a conversation and ask if they know how it works.
Particularly for the person in the position of going into aged care it can be a very difficult time.
Lynch said, “People come to you and they’re very stressed and it’s an elegant solution to giving them this breathing space to work out what they want to do rather than be rushed into something.
“If brokers are interested in getting into this area, we’d be delighted to talk to them now we’re looking to broaden our distribution. We’re looking for people to focus on this area and go through the training and understand it.
“It’s just the message to get out about giving people dignity during their retirement rather than going cap in hand to their families. That’s what keeps me going in terms of customer reaction.”
