A growing number of older homeowners are taking government-backed reverse mortgages

“These changes provide more options and greater flexibility for program users and should increase the number of older Australians choosing to participate.”

Reverse mortgages allow senior homeowners to borrow money secured against their property. If they don’t make payments, the debt accumulates and is paid off when the property is sold or the borrowers die. Commercial loans taken out since 2012 have no negative equity guarantee, which means borrowers cannot owe more than the value of their stake in their home, and this guarantee has also been added to the government program this this month.

Prior to 2019, participants in the government scheme could receive fortnightly income up to the full pension rate, including any existing pension payments, effectively making it only available to partial retirees and some self-funded retirees. From July 2019, borrowers were able to borrow to fund fortnightly income of up to 150% of the full pension rate.

Meanwhile, figures from the Australian Prudential Regulation Authority show the continued decline of the trading market. The value of outstanding reverse mortgages held by banks, building societies and credit unions fell to $2.21 billion at the end of March 2022, down 18% from $2.7 billion in dollars compared to the same period in 2019.

In 2019, Commonwealth Bank and its subsidiary Bankwest were the last major banks to exit the reverse mortgage market for new loans, but the products are still offered by a handful of smaller lenders charging 6-7% interest per year.

Comparison site Canstar says lenders offering reverse mortgages include Household Capital, Heartland, IMB, P&N Bank, G&C Mutual Bank and Gateway Bank.

Steve Mickenbecker, a financial expert at comparison site Canstar, said commercial reverse mortgages had failed to live up to expectations.

“Reverse mortgages were developed with high hopes that they would provide the financial solution for asset-rich, cash-poor retirees to fund the retirement lifestyle they aspired to,” he said.

But Mickenbecker said early offerings in the reverse mortgage market produced unfavorable outcomes for customers and that while this was largely fixed by regulation, it still involved “significant trade-offs and some risk. for the borrower”.

He said many providers pulled out of the reverse mortgage market during the global financial crisis because they were expensive to run, with an uncertain time frame. The market had not recovered and was unlikely to as rising interest rates would accelerate debt growth and could lead to lower property values.

Deb Shroot, financial adviser at the National Debt Helpline, said she sometimes recommends the Centrelink program to clients, adding that it works in the same way as council-run hardship programs to allow older people to defer their prices.

“If these forms of loans or hardship [schemes] allow people to stay in their homes longer, if that’s what they want to do then they can be a very good option for people as long as they go through proper checks to ensure they are suitable and don’t charge unaffordable interest,” Shroot said.

Shroot said the main reasons seniors called the National Debt Helpline included credit card debt for which they had only ever paid the minimum balance, utility and energy bills and rising the cost of living in general, as well as unaffordable rates and strata debt.

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