Retirees could be stung by their reverse mortgage after a report found the choice of lender could add more $100,000 to the cost of a loan.
A report from broker Seniors First Finance found large discrepancies in the interest and fees charged by different lenders servicing the $1 billion market.
In one example, an interest rate of 9.07 per cent with monthly fees of $12 on a loan of $100,000 would incur a total cost of $525,000 over 20 years.
This is the rate charged by both St George Bank and the Commonwealth Bank of Australia, which according to Infochoice data is the highest in the market.
This was $107,000 more than the same loan amount offered by a reverse mortgage specialist that charged interest of 8.2 per cent. The consumer would incur a total cost on that loan of $418,000.
“Some lenders are not very good at showing borrowers how to save money,” Seniors First managing director Darren Moffatt said.
“Due to the nature of these loans, regular repayments are not required and the ‘capitalised interest’ will compound over time,” he said.
Reverse mortgage specalist the Over Fifty Group has the cheapest variable and fixed rate at 8.25 per cent.
“The mainstream banks are the most expensive at the moment,” Moffatt said.
“If you look at the interest rates you’ll see a massive difference.”
White label arrangements between product manufacturers and banks mean margins are built into the retail products.
The interest rate is just one component of a reverse mortgage that needs to be considered, consumer lobby group Choice and the Senior Australians Equity Release Association of Lenders (SEQUAL) said.
“The most important thing is finding a contract that is fair,” Choice spokeswoman Ria Voorhaar said.
A Choice shadow shop of the sector last year revealed wide default clauses, poor standards of information and salespeople that encouraged consumers to take out maximum possible loans.
SEQUAL executive director Kieren Dell said the interest on most equity release products are only half to one per cent higher than that of an average home loan.
