Boomers’ bold move: How we helped our kids build a home

Retirees Ivan and Renate Jagic at their Tarragindi home. Pic: Lyndon Mechielsen/Courier Mail

Retirees Ivan and Renate Jagic leveraged the family home to help their adult children climb the property ladder.

While many homeowners faced mortgage debt into retirement, the challenges of the property market also impacted intergenerational wealth.

The Jagics, who are aged in their 70s, consulted specialist reverse mortgage broker Seniors First on innovative solutions that meant they could use the equity in their property without having to sell.

The Tarragindi couple opted for a reverse mortgage, tailored to over-55s, to direct a generous sum to their son for his new home build.

The couple took out a reverse mortgage rather than downsizing. Pic: Lyndon Mechielsen/Courier Mail

Mr Jagic, who worked in the building industry, recognised the difficulties facing young homeowners today.

Massive home price growth, coupled with the cost of living, meant people were buying their first home later and taking on huge debts.

Even though the Jagics were “financially sound” and not using the loan to clear their own mortgage, their decision highlights how crucial home equity is in retirement.

“My wife and I are going to leave money for our boys when we pass, but we also like to see what is achieved with the gifts we are giving,” Mr Jagic said.

Mr Jagic has a “business arrangement” with his son, who will pay the interest on the loan, with the debt to be settled after his son sells his own home.

Mr Jagic worked in the construction industry, and the family owns a city comic store. Pic: Lyndon Mechielsen/Courier Mail

This strategic use of a reverse mortgage has allowed the Jagics to support their family, without selling their cherished home.

“When the dust settles and [my son] sells his home, I want to reward myself with a beautiful new Mercedes, and also give some money to my two boys,” Mr Jagic said.

Seniors First CEO Darren Moffatt said a reverse mortgage allowed older homeowners to convert some of their home’s equity into cash, receiving a loan that doesn’t require regular repayments as long as they live in the home.

“You can receive funds as a lump sum, a regular income stream, a line of credit, or a combination of these,” he said.

“The loan, with compounding interest and fees, is repaid from the sale of the property after the last owner moves out permanently or passes away.”

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Finance broker Andre Dixon, of Inovayt, said a reverse mortgage was a useful tool for “asset rich but cash poor” retirees, but wasn’t without downside.

“The main risk is compounding debt,” Mr Dixon said.

“Because no repayments are made, interest is added to the balance each month and you end up paying ‘interest on interest.’ With variable rates that are often higher than standard mortgages, the loan can grow quickly and significantly reduce home equity.

“The longer the loan runs, and the more funds are drawn, especially in a lump sum, the less is left in the property for future generations,” he said.

Seniors First CEO Darren Moffatt

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Mr Moffatt said the expectation of a debt-free retirement had waned, as rising house prices led to larger loans with longer terms.

Economic pressures from the cost of living, divorce or time off work added to the strain, with Colonial First State’s Rethinking Retirement Report revealing 28 per cent of Australians aged 50 to 64 still had a mortgage, and 14 per cent of retirees were yet to pay theirs off.

“More people are still carrying mortgage debt well into their 60s and beyond,” Mr Moffatt said, facing the hurdle of “paying the same level of bills and expenses as when they were working, but on limited retirement incomes.”

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Yet only 13 per cent of Aussies planned to downsize, highlighting the emotional value of the family home.

Mr Moffatt advised homeowners in their 50s contemplating retirement to budget for extra repayments while still receiving a consistent income.

“It’s an unfortunate reality that work often becomes more patchy for people in their 50s and 60s, so any plan needs to acknowledge this.

“Don’t ignore the looming problem and hope it goes away. The sooner you face it head on, the better.”

While reducing the mortgage as fast as possible was often the goal, this needed to be balanced against super contributions, ideally with financial advice.

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