REVERSE mortages are one of Australia’s fastest-growing financial products but continue to attract more than their share of conroversy.
The idea of dipping into your home for cash sits uncomfortably with some retirees, and many financial planners are concerned about potential problems.
But criticism has not slowed the growth of the sector, which started in Australia more than 20 years ago and is now booming.
A report released last month by Trowbridge Deloitte and the Senior Australian Equity Release Association of Lenders (SEQUAL) found the reverse mortgage market had more than doubled in size in the past two years to $1.81 billion, growing 67 per cent in the past 12 months.
It found the average loan size was $57,356 and the average age of borrowers was 73.
SEQUAL executive director Kieran Dell said the South Australian market was now growing strongly - representing about 9 per cent of the national market - after a slow start.
HomeStart Finance’s general manager retail services, Kathryn Murray, said there were no guidelines or benchmarks when HomeStart launched its seniors equity loan in 2004, but this had now changed.
“Since the seniors equity loan inception, customers have used it for many different reasons: To take the holiday of a lifetime, help their children with a home deposit, fund their grandkids’ education, buy a reliable car or renovate the house - all of which may have been impossible prior to development of this product,” she said.
Mellor Olsson Lawyers partner Karen Olsson said borrowers should check that their reverse mortgage had a “no negative equity guarantee” which meant that debts could not exceed the value of the security.
“Borrowers should be aware of the current economic climate and how this can affect their financial situation. Reverse mortgages work best when house values are high and interest rates are low,” she said. Ms Olsson said interest rates for reverse mortgages were currently higher than the standard variable rate, but this might change as the market becomes more competitive.
BankSA general manager Chris Ward said there were many myths about reverse mortgages.
“They often prompt questions such as: Will the loan end up greater than the house price? Will their children be left paying the debt? Are seniors entering into these loans without understanding the implications?”
Mr Ward said reputable lenders ensured the product was understood and put in place low borrowing limits, forecasts of how the loan would rise, written proof that the borrower had consulted a lawyer, and regular reviews of the loan.
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