Let me give you a practical example of compounding interest. Sorry to be briefly technical but first l must explain the financial rule of 72 as it applies to compounding interest.
If you borrowed a sum of money on a REVERSE MORTGAGE and the interest rate was say 10% - high by today's standards, but let's stay up there for now, any amount you borrow will double in 7.2 years. Of course remember you pay no interest on a monthly basis on that loan, it simply accrues and is repaid in total when the contract ends.
So say you choose to borrow $50,000 and assuming it was ALL drawn down on day one, very unusual - because customers draw down just what they need from time to time. But let's stick with the worst case, the full $50,000 drawn down on day one, in 7.2 years you would need to pay back $100,000. Sounds a lot - maybe, depending on your need. Now if that $100,000 was billed against a $400,000 freehold home AND assuming there was absolutely ZERO increase in house value over those 7.2 years, one quarter of your house value would have been spent leaving three quarters for your beneficiaries. But you could have had what in
gross terms would amount to a monthly payment of the equivalent of $600 in your hand - for every one of those 86 months in exchange for that loss of equity That's on top of your National Super. That could be the difference between existing on the pension - AND BEING FINANCIALLY INDEPENDENT again.
Having some extra cash to pay the Rates.; buy a new fridge or TV, or being able to enjoy some small luxuries again. Is it sounding like a fair swap now?