The Case for Home Equity Financing

Home equity release finance
is a solution for elderly people who are asset rich
but have declining disposable incomes
owing to the soaring cost of living.

The fallout from the COVID-19 pandemic has blown the dust off the many fault-lines in modern society—not least among them, the plight of our more vulnerable citizens such as the elderly.

The “financial crisis” surrounding the pandemic has contributed significantly towards the plight of retirees, many now finding that their income has not kept pace with increasing costs, and compelled to sell their homes, “downsize”, move into complexes or in with family members.  

Together with an emotional “obligation” that elders might feel towards leaving their homes to heirs, what emerges is a situation in which retirement becomes a time of compromise.  Lifestyles are negatively affected behind an ethos of, “I’ll just keep working; I won’t treat myself; I can’t spend money on visiting my children and grandchildren.”

“A number of factors are adding to the exorbitant cost of living, among them increased rates and taxes, special levies, rising electricity costs, security and crime prevention measures, medical inflation, food inflation, and so on,” says Chris Loker, a former banking executive who is co-founder of Water Financial, a home equity finance provider recently launched in Cape Town. “And, added to this, people are living longer – with the improving quality of healthcare, this trend will accelerate.”

Consider the brave decision of Chuck Feeney.  Feeney is the former billionaire who met his promise to give all his wealth away to charity in his lifetime.  He has nothing left now—and he couldn’t be happier.

One might not go to such extremes to “live life to the fullest”.  However, consider your obligation to your heirs.   If you clothed them, fed them, and educated them—seeing them successfully into adulthood and self sufficiency—have you not discharged your obligation and entitled at least to enjoy the fruits of your hard work?

Asset rich but cash poor

“Often elderly people are asset rich but cash poor,” continues Loker. “Typically, the two biggest financial assets are your pension and your home.  Sometimes, despite a lifetime of planning and saving, pensioners are left unable to meet monthly running costs. We all have a plan until we are punched in the face and unforeseen circumstances or costs disrupt our best efforts.  This has been exacerbated in a COVID world.”

Home equity finance

Home equity finance allows retired homeowners, now often beyond the ability to earn more by any other means, to responsibly tap into one of these assets. “Freedom Finance” provides monthly loan payments to retired homeowners to spend as they wish, using their paid-off properties as collateral. The finance is flexible and can be tailored to the borrower’s needs.

This option has existed for decades in developed countries such as the USA, UK, Europe, Canada, and Australia.  It has previously been offered in South Africa, mimicking international offerings, but there have been some hurdles, mostly created by the high interest rate environment. Water Financial has worked over the years to engineer a unique product that overcomes these hurdles and delivers a borrower-friendly product focused on income shortfall, rather than a lump sum payout. Using an algorithmically determined percentage of what the property is worth, Freedom Finance is spread over 60 months, lessening the interest costs.

“You remain the beneficial owner of the home but draw down a loan which is secured by the property. When you move, sell or pass, or choose to settle the outstanding amount,  the loan is repaid. Water Financial has no interest in owning assets.  We are a finance business, earning an interest margin on loans,” Loker qualifies.

Consider the decision carefully

“It’s important to consider this decision carefully.  Talk it over with your children, research other options, read the small print, and work with a reputable provider that has your best interests at heart.  If you are able to pay the money back, then it is advisable to do so, but make sure whichever home equity finance product you choose, allows you to do so without penalties.”

Accessing debt at an advanced age

“Accessing debt at an advanced age may seem counter intuitive, but it’s more important to look at the terms of debt, other options available, and the impact on your heirs.  If these conditions are acceptable, this is a logical enabler for aging in place, affording the independence and autonomy that most older people desire.”

Conclusion

Since launching the pilot phase, Water Financial has been inundated with applications, owing in part to the prevailing economic crisis.  This is also testament to the desire for a product with broad market appeal. “We want to work with you to make your golden years more comfortable within the financial limitations you have, and are committed to a long and happy relationship,” Loker concludes.

Water Financial | DiHyrO Finance (Pty) Ltd is a registered Credit Provider
with the National Credit Regulator.
Registration Number: NCRCP13085

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