Finance experts are warning of changes to the industry because of the surging popularity of reverse mortgages.
As baby boomers begin to retire it is being found that mot of their savings are tied up in property. And these investments are being used to fund their lifestyle in retirement.
Superannuation is not enough for most Australians to retire on without a drastic change in consumption. The pension is being eroded year by year. The health systems is becoming exorbitant and beyond the access of many wage earning families. Just as the cost of living generally is becoming more expensive. All these factors point to the likelihood retirees will be accessing the only wealth they have – their homes.
Reverse mortgages are loans against the value of their property that the borrower never has to pay back. Interest rates vary from one lender to the next; however they are typically 1-2 per cent more than a standard home loan.
The interest is added to the loan principal and taken out of the homeowner’s estate when they die.
But lenders are very cautious. The industry came in for heavy regulation when it first began – Some borrowers lived longer than they expected, so when their loan amount equalled the value of their property the lender sold the house from under them.
Ths cannot happen anymore, so lenders are careful of the amounts borrowers can access. Someone aged 65, for instance may only borrow 15 per cent of the value of their home. An 85 year-old, however, may access 45 per cent.
It’s big business and expected to get bigger as more people retire.

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