Why do many people say reverse mortgages are not a good idea?
Understanding and learning how far they have come can help you bust the myths around it.
Here are four reasons why reverse mortgages have a bad rep:
In the past, a lot of reverse mortgages were based on giving the customer the full amount of money upfront.
While this may still have helped the customer, it meant interest was charged on the full amount drawn down from day one (even if the customer only needed the money gradually over time).
This caused the loan (and the debt) to grow quickly. Today, the big focus is to encourage customers to only draw down the funds as they need them, which significantly reduces interest costs.
For example, a new lender on the Seniors First panel gives the customer a debit card, a great way to only draw down a small amount of money as you go.
Reverse mortgages have come a long way.
A reverse mortgage is a financial product for asset rich, cash poor Australians.
If you have a good super, or a lot of money in term-deposits, a reverse mortgage may not be suitable.
At Seniors First, there are instances that we talk seniors out of the loan as they would be better off using their own resources. We also make sure that our clients fully understand the implications.
For example, there will be less to leave behind to your estate if you have a reverse mortgage.
Some people are outraged by the thought of this (and can be highly critical of others who do not feel the same), while some people have no children, or wealthy children, who may feel differently.
That is why it helps to talk to an expert at the start to guide you through all the implications, and make sure a loan like this is the right fit
Some people do not understand what life is like on the pension (especially a single pension).
I have heard many people criticise reverse mortgages who have never been on the aged pension.
People are often critical of things they do not understand. The single age pension has been described as a borderline poverty line.
When you do not have enough money to pay for dental, house repairs, car maintenance, or health emergencies, people on the pension sometimes rely on credit cards at 18% – 20% interest.
A reverse mortgage is between 5% – 6% interest, and you can still make repayments if you need to. Walk a mile in the shoes of a pensioner before criticising!
[ RELATED POST: How does a Reverse Mortgage affect your Age pension? ]
4. “REVERSE MORTGAGES HAVE HIGH-INTEREST RATES”
In the past, the interest rate on reverse mortgages was much higher compared to current rates.
But nowadays, new applicants can get a very competitive rate between 5% – 6%.
Here’s the thing: no two reverse mortgages are the same. It really helps to talk to an expert about your needs and circumstances.
We can explain the differences between lenders, the current rates and fees, and important considerations for your future.
To help you learn more about a reverse mortgage, you can download our free reverse mortgage guide.
You can also call Seniors First on 1300 745 745 to talk to a reverse mortgage specialist or visit www.seniorsfirst.com.au