06-039 ASIC launches reverse mortgage calculator for seniors
Thursday 16 February 2006
ASIC has launched a new calculator to help older Australians who may be thinking about taking out a reverse mortgage.
The number of reverse mortgages on the market has increased significantly, jumping from three to 18 products in the last two years. Reverse mortgages allow older people to borrow money by mortgaging their home, without having to pay back either the amount borrowed or the interest due until they leave their home or die.
‘While reverse mortgages may provide a useful way to release equity in people’s homes, they involve significant risks and should be handled with care,’ ASIC’s Executive Director, Consumer Protection, Mr Greg Tanzer said.
‘Before you take out a reverse mortgage,
- get independent financial advice to help you decide whether the product is likely to be able to meet your needs now and in the future;
- ask an independent solicitor to check the contract and explain the fine print; and
- discuss your intentions with your family,’ Mr Tanzer said.
The new calculator on our consumer website FIDO, at www.fido.gov.au shows how debt can build up and may affect how much of your home you still own as time goes by.
Unlike some other calculators that tell you only how much you can borrow, the FIDO calculator shows the likely long-term impact of one of these products on your level of equity in your home. For example, you can see that, in most cases, the size of your loan is likely to double within 10 years.
The FIDO reverse mortgage calculator shows the effect on the equity in your home based on decisions you may make about:
- how much you borrow;
- whether you take an initial lump sum, or arrange regular payments or a combination of both;
- how long you borrow for;
- interest rates and various fees; and/or
- changes in home values.
A user guide includes explanations and useful tips about reverse mortgages.
‘Because your debt builds up, taking out a reverse mortgage may be a move you cannot easily take back, locking you or your estate into a decision to sell your home at some future date,’ Mr Tanzer said.
‘For that reason, you may be better off delaying such a decision for as long as you can.’
‘We strongly suggest you initially look for reverse mortgages that have a ‘no negative equity guarantee’, so you or your estate are not left having to find extra money if the debt exceeds the value of your home,’ Mr Tanzer added.
FIDO has lots of tips on understanding equity release products (including reverse mortgages) and the questions to ask before you commit to one. Visit FIDO’s Reverse Equity page at www.fido.gov.au/equityrelease
About reverse mortgages
A reverse mortgage allows you to borrow money secured against your home, without having to pay back either the amount you borrowed or the interest due until you leave your home or die. Instead, your debt and interest builds up (or compounds) over time. They are generally restricted to senior Australians. You will generally be required to maintain and insure your home and pay your rates at your own expense.
End of release
Try out FIDO's reverse mortgage calculator
More about reverse mortgages
ASIC Website: Printed 02/10/2010
