Seniors Into Reverse
Illawarra Mercury
Tuesday January 8, 2008
ILLAWARRA'S cash-strapped seniors are joining the rest of the country in the rush to draw on their biggest asset - their home - without having to sell up and move.
Reverse mortgages allow people to access a portion of their home equity, usually in a lump sum or an income stream.The total number of reverse mortgages in Australia has nearly doubled from 16,584 in December 2005 to 31,544 in June 2007.Illawarra industry sources say interest in the relatively new product is strong particularly in areas where house values are high."They fill a niche market ... for instance, just look at some of the northern suburbs residents who have homes worth a lot but which are falling down around them," said financial adviser Julie Logan from ABN Amro Morgans.She offers independent advice to seniors who are considering taking out reverse mortgages, a requirement of most providers."My advice before people commit is to evaluate all options and be comfortable with any decision before proceeding."IMB, one of a number of reverse mortgage providers in the Illawarra, introduced the product last February and most of the four seminars it has run in the region since have been to full houses.Although it would not release exact figures for commercial reasons, it says it was happy with the uptake so far and expects further growth.Chief executive Robert Ryan said he recognised there was potential for growth as more retirees use the product to fund their lifestyles."Nationally, the reverse mortgage market has grown significantly in recent years."We expect this growth to continue but at a slower rate, particularly given the interest rate cycle we are now in," he said.He said the major concern among members was the consequences if debt exceeded the value of their home."Borrowers need to be sure their product includes a 'no negative equity' guarantee which protects them against having to pay any shortfall while allowing them to remain living in their homes."Wollongong Mortgage consultant Paul Wright from IPS Homeloans said while demand had been minimal he expected that to change as more people gained knowledge and understanding of the product."The population is ageing and people are retiring without sufficient super, therefore, they will need additional income and reverse mortgages are an option," he said. "As far as the risks go, it is relatively new to the market and we may have to wait for a few years to have a better appreciation of outcomes."WHAT IS A REVERSE MORTGAGE?A REVERSE mortgage allows you to gain access to a portion of the equity that is tied up in your home, either as a lump sum, an income stream, a combination of both, or a drawdown facility. Unlike a conventional mortgage, it does not require regular repayments but is instead repaid from the borrowers' estate on death, usually from the sale of the house. As such, it is the reverse of a normal mortgage, because the debt does not decrease but increases.HOW DOES IT WORK?THE borrower retains full ownership of the home and the lender registers a mortgage over the house.Because there are no regular repayments and the term of the loan is unknown, interest on a reverse mortgage is higher than a conventional mortgage by 0.5 to 2 percentage points. This is added to the value of the loan, or capitalised, and is recouped from the estate, along with the principal and fees or charges.
© 2008 Illawarra Mercury
