Reverse Mortgages - Don’t Drive yourself into Debt

If you are thinking about signing on for a reverse mortgage make sure you fully investigate the long-term eff ects before taking the step, warned Fair Trading Commissioner Brian Bauer. “A recent report produced by the Australian Securities and Investment Commission (ASIC) found retirees lacked an understanding of reverse mortgages,” Mr Bauer said “the report surveyed 29 borrowers and found almost half did not know how much the loan would eventually cost. Reverse mortgages are a growth area for the finance industry, but the glossy advertising can hide big pitfalls.” A number
of the survey respondents admitted to spending the borrowed money too quickly, saying it was diffi cult to resist the constant availability of money.

Reverse mortgages are loans borrowed against a home, which don’t need to be repaid until the house is sold. “Nearly a quarter of respondents also did not receive fi nancial advice or information about the risks involved before finalising their reverse mortgage,” Mr Bauer said. “Retirees should check loans have a negative equity guarantee ensuring debt cannot exceed the home’s value, if not you may have to meet the shortfall if your debt amounts to more than the value of your property:

“Increasing interest rates could result in the loan amount doubling within ten years. Before signing up speak to an independent financial advisor to determine if this is the best available option for you.

” A copy of the report is available at www.asic.gov.au.

For more information on credit management, grab a copy of How to be Moneywise at www.fairtrading.qld.gov.au or phone 13 13 04.