The corporate regulator’s major review of the reverse mortgage market, released this week, found equity release products can help retirees fund their desired lifestyles, but poor understanding of the costs and perfunctory lender checks are stinging some.
Speaking to Nest Egg, reverse mortgage specialist at Omniwealth Ambreen Sumar said there are “so many misconceptions” about the product, and that the ASIC report highlighted the importance of clear communication.
This means going beyond explaining fully and correctly and ensuring elderly clients actually understand what they’re signing up for, she said.
It also means involving the family, so they understand how it works and how clients can achieve their goals without losing the family.
For clients, Ms Sumar explained, the main concern is “that they're going to lose their home, but that is not the case”.
She explained that retirees can put in place equity protection schemes, allowing them to nominate the amount of equity they protect.
Additionally, clients can work with planners and brokers to build a strategy to protect their children’s inheritances.
For example, an age pensioner couple both aged 70 with a property valued at $1.5 million could take a reverse mortgage loan of $300,000 for renovations and to go on a holiday with their grandchildren.
“At age 70 they would be eligible for 25 per cent of the value of the home as a loan with a 6.29 per cent interest rate,” Ms Sumar said.
“Normally, there are no repayments required with reverse mortgage loans. However, their children decided that they would contribute the interest only component or any contribution equally between them, so the loan amount does not increase and the impact on their inheritance is minimum.”
The mortgage broker said this shows the different options available to retirees, but emphasised the importance of having a strategy.