According to a recent report from Finder.com.au, on average parents are planning to give their children over $30,000 to put towards a home deposit. This is roughly one third of the average first home buyer deposit ($96,274)!

Recent property hikes combined with interest rate rises mean that without the help of their parents, plenty of young Australians will be priced out of the market according to money expert at Finder, Sarah Megginson.

Megginson also stresses it is important to consider whether you are financially secure before contributing to your child’s property expense, as you could run out of money later in life, and struggle during your retirement years.

If you are wanting to help your kids now, but are concerned about paying for your retirement, you could:

• Wait to provide your inheritance when you pass away.
• Sell the family home and downsize.
• Sell the family home and rent.

However, if you wish to remain in the family home (as there are many physical, mental and financial impacts on retirees associated with downsizing), or wish to provide financial support to your family sooner and witness the positive impact of your generosity, rather make your children wait for their inheritance, is there another option?

 

Could you help your kids now with a reverse mortgage?

Another alternative growing in popularity to release equity from your home are reverse mortgages. A reverse mortgage could allow you to tap into the equity in your home and gift this money to your children, grandchildren, or other beneficiaries without losing home ownership or compromising the rest of your retirement security. Unlike a normal home loan, you won’t need to make regular monthly loan repayments as the loan including interest can be repaid from the future sale of the property.

In addition to helping your children with a home purchase, a reverse mortgage could also be used for other gifts such as educational expenses, weddings, medical emergencies, and other unexpected expenses. It can also help you to support ongoing cash flow or other needs in retirement.

However, exercising caution and making informed decisions are essential when considering a reverse mortgage for gifting purposes, and Heartland is committed to guiding its customers through this process. To ensure transparency and safeguard against potential misuse, Heartland does not permit gifting when the application is signed by a power of attorney or under a guardianship or administration order.

Here are some points to consider before gifting funds through a reverse mortgage:

• Government entitlements: Gifting funds to children may alter pension or other government entitlements. It depends on the gifting amount and specific circumstances. It is important to consult with Services Australia to understand how such a decision might affect your benefits. Find out more on their website.
• Family discussion: Whether to involve family is up to our individual customers, however, Heartland actively encourages it and requires customers to confirm that they have considered this key part of the application process.
• Independent advice: We require independent legal advice to be taken out on all loans. This ensures that you fully understand the loan agreement terms and the implications of taking out the loan. Financial advice is also highly recommended.
• Future planning: It is essential to consider your future needs and how they will be financed. Factors such as potential aged care costs, ongoing retirement funding needs, and leaving funds in your estate in the future should be carefully evaluated. Understanding longevity risk – the risk of outliving financial resources – is also critical. To assist in making an informed decision, you can calculate the equity that will remain in your property in the future if you proceed with a reverse mortgage. ASIC’s Money Smart Reverse Mortgage Calculator can be a useful tool for this purpose.

Using a reverse mortgage for gifting purposes can be a meaningful way for seniors to support their loved ones financially, especially when it comes to helping first-home buyers overcome the hurdle of accumulating a substantial deposit.

To find out more about using a reverse mortgage for gifting purposes, please feel free to request an application pack or get in touch.

The information provided is accurate as of 22 August 2023 and may change from time to time.