by Paul McBeth
Retired householders have a new way to unlock the equity in their homes thanks to a locally developed mortgage product.
Being asset-rich and cash-poor is a common enough dilemma. The only money coming in is the National Super and a few dividends, and yet you don't want to sell the family home and move somewhere cheaper. Raising a mortgage to buy an investment property has been pretty much a non-starter with no salary to service the loan.
Enter the Retired Investor Mortgage, just developed by bank product analyst and managing director of Apex Mortgages Kieran Trass in conjunction with a non-bank lender. That lender (who can't be named at this stage - the mortgage product hasn't yet been launched officially) has given Apex exclusive distribution rights until the end of March.
Offered at a 1.25 per cent premium above the lender's current fixed and floating rates, the Retired Investor Mortgage comes with a number of conditions that Trass says "are generally to ensure a responsible approach is taken to lending in this market".
For example, investors can't borrow more than 50 per cent of the property's registered valuation and they can't borrow more than $300,000. Trass says the lender is also fussy about the kind of properties involved (residential's the go, but not inner city apartments).
The key attraction for retirees is that no evidence of income is needed to obtain the loan. However, they will have to provide a rental assessment on the property they're planning to buy.
Trass gives the example of someone owning a $300,000 home freehold who wants to buy a $200,000 rental property.
"They could raise the full $200,000 for the property plus have a $50,000 line of credit as a fallback (to cover any vacancies between tenants or unexpected maintenance costs)."
Trass says the idea for the product came about after he was talking to a real estate agent late last year who had a number of clients in the same boat. They wanted to buy investment properties in their retirement and they owned their own homes, but were unable to make use of that equity.
"Until now, it has proven very difficult to raise mortgages for the retired from lenders, with very few lenders offering what is known as Reverse Annuity Mortgages (RAMs)."
"I approached a number of lenders and found one that was exceptionally open to the suggestion. We came up with a number of parameters...and designed the product."
Trass says the Retired Investor Mortgage isn't an annuity product "but quite simple, and deliberately designed to be so."
"Clients must seek independent legal advice even before they accept the loan offer. We want to make sure people understand very clearly what their obligations are."