Reverse Mortgages on the Rise
Asset rich but cash poor senior Australians are increasingly taking up reverse mortgages to help fund retirement activities, according to leading mortgage broker Loan Market.
Loan Market Sydney-based principal finance broker and reverse mortgage consultant Bob Staley said more than 40,000 Australians currently hold reverse mortgages, which are also known as Seniors Finance Equity Release loans.
Mr Staley said a recent survey by accounting firm Deloitte found the take up of reverse mortgages had grown 22 per cent over the past two years.
“It is becoming more popular in the post global financial crisis environment,” Mr Staley said.
Reverse mortgages are available to people aged 63 and over and are designed specifically to allow seniors to use the equity in their home or investment property to release cash for their own use.
“This is a lifetime loan with no repayments required until the property is sold,” Mr Staley said.
“Unlike the traditional mortgage, there are no criteria to obtain a reverse mortgage such as income criteria. It can be used for any purpose such as an overseas holiday, to buy a car, to invest, home improvements, health reasons or repayment of a current mortgage.”
Mr Staley said the maximum amount available to borrow under a reverse mortgage was $425,000. The interest rate is slightly higher than the standard variable interest rate.
“There are a range of lenders who offer reverse mortgages, and each lender will make various percentages of equity available depending on your age and the age of your partner,” he said.
In an interview with Sydney small business radio station Eagle Waves, Mr Staley said reverse mortgages were “a niche market which is there for the people it suits”.
Mr Staley, a member of Senior Australians Equity Release Association of Lenders (SEQUAL), said reverse mortgages did not suit all circumstances and anyone considering a reverse mortgage should seek independent financial and legal advice.
“We encourage people considering a reverse mortgage to visit the ASIC website www.fido.gov.au which has a reverse mortgage calculator accessed via the ‘Over 55’s’ link,” he said.
“We also recommend you look for reverse mortgages that have a no negative equity guarantee, so you or your estate are not left having to find extra money if the debt exceeds the value of your home.