A reverse mortgage can be a great option to assist with paying a Residential Accommodation Deposit (RAD), but can be overlooked because of some persistent myths.
Affinity Aged Care Senior Adviser Don Swanborough says confusion around reverse mortgages means some people are reluctant to consider them when it comes to paying a RAD.
“I’ve had many clients who assume that the principal and interest can accumulate to such an extent that the home will have negative equity – that is, owing more than the value of the property,” Don said.
“This is one of the greatest myths of reverse mortgages and the government’s recent introduction of ‘no negative equity’ legislation puts this myth to rest.”
“The mortgage contract must also allow the home to be rented while the homeowner is in permanent aged care.”
He said a reverse mortgage could also provide cash to fully or partly fund the RAD.
“And of course a RAD is returned to the person if they leave the aged care facility (nursing home) or will go to the estate when they pass away, which can cover the mortgage principal,” Don said.
“Like many aspects of aged care planning, the process can be complex so it is crucial to speak to a certified aged care adviser before making any decisions.”