Are cash-poor and asset-rich retirees looking to access funds via reverse mortgages to cope with the cost of retirement. News.com.au is reporting they are.
The the new changes to the age pension assets test affecting hundreds of thousands of retirees, many have had to reassess their financial situation and look at how they can live comfortably into retirement.
News.com.au is reporting financial comparison website InfoChoice shows reverse mortgage interest rates range around seven per cent and there can be establishment costs as high as $1050, as well as ongoing costs.
The site’s spokeswoman Laura Crowden said these types of deals were “growing in popularity” but that the spend involved should not be underestimated.
“Unlike a regular mortgage, you don’t make any repayments.
“Instead, the interest compounds and is added, along with any fees and charges, to the principal until the loan is repaid in one lump sum (when the home is sold).”
According to Deloitte’s 2015 report on reverse mortgages about five lenders offer them.
There are about 40,000 reverse mortgages in Australia to the value of about $3.6 billion or an average of $90,000 per mortgage.
Moneysmart’s senior executive leader Miles Larbey said it’s crucial those considering reverse mortgages seek independent advice.
“You need to think about the debt and the fact interest will be compounding on the reverse mortgage,’’ Mr Larbey said.
“Definitely speak to your nearest and dearest and also seek legal advice.”
Often there are limits on reverse mortgages — for example if you are 60, the maximum you can borrow is about 15 to 20 per cent of the value of your home.