A snapshot survey of reverse mortgage customers by the corporate watchdog has found an alarming lack of understanding about the complex equity release product.
The results have led to calls by Senior Australians Equity Release Association of Lenders (SEQUAL) for ASIC to work with the industry to increase seniors’ financial literacy.
One reverse mortgagee said it was “like having a credit card with a $100,000 credit limit and no repayments”, according to ASIC consumer protection executive director Greg Tanzer.
“Many of those ASIC spoke to did not know how much the loan was likely to cost them over time and more than half did not know what would happen if they breached a loan condition,” he said.
“Most people did not have tailored projections about the likely long-term cost of a reverse mortgage.”
A reverse mortgage is a loan where the consumer borrows money against the equity in their home. The loan and interest is not repaid until the home is sold.
A borrower’s home could be at risk if they breach loan conditions.
ASIC interviewed 29 borrowers for the report All we have is this house. The watchdog said the study was not designed to represent the market generally.
Difficulty budgeting with access to a large amount of borrowed cash and reluctance to plan for the cost of declining health and changing accommodation needs, were also identified as problems.
ASIC also identified a future risk could be children encouraging their parents to take out a reverse mortgage to use the funds for their benefit.
The regulator’s report did not find any reverse mortgages in default. All seniors surveyed found their reverse mortgage experience satisfactory or better.
SEQUAL called for ASIC to invest in senior Australians’ long term financial literacy.
“This task has largely been left to SEQUAL’s members and the brokers, financial planners, accountants and lawyers dealing with seniors,” SEQUAL executive director Kieren Dell said.
