Reverse mortgages are secured against your home. The title stays in your name and you’re responsible for all ongoing costs such as rates and maintenance.
The impact of fees and interest means the loan grows over time. What’s left after it’s repaid depends on factors such as how much your house increases in value, the interest rate and the amount you borrowed.
Originally reverse mortgages were sold directly by the lender, but in the last few years mortgage brokers have started to offer these products. Currently only very few loans are sold by licensed financial advisers.
Please note: this information was current as of February 2007 but is still a useful guide to today's market. For more recent information, see our Reverse mortgages 2010.
We sent three shadow shoppers, aged 65, to a total of 10 mortgage brokers and five companies offering reverse mortgages to find out what sort of information and advice is offered.
- Each shadow shopper is married and the sole owner of their home.
- All are retired: one receives a Centrelink pension, the other two a pension for Commonwealth employees.
- They live in Sydney with houses valued between $600,000 and $1.5 million.
- They asked for a $60,000 loan to buy a new car and go on a holiday.
23 loan contracts assessed
We assessed 23 loan contracts of reverse mortgages against six standards for consumer protection.
- None of the loans met all the standards.
- Ten met the five that we consider to be minimum contract standards.
- Two are rated poor.
Read our reverse mortgage comparison.
What we found
Our shadow shop revealed a poor standard of product information and advice — it’s inadequate and needs regulation in order to improve.
- The majority of brokers and salespeople encouraged borrowers to take the maximum possible loan instead of the requested amount. The more you borrow, the faster the debt grows and the less you or your estate will receive when the house is finally sold.
- Most brokers and salespeople didn't give consumers all the information they need to make an informed decision. See Higher standards needed.
- And we heard of some mortgage brokers offering very risky ‘asset loans’ to people enquiring about a reverse mortgage, which can put them in danger of losing their home.
- See Risky asset loans.
Reverse mortgages can only work to your advantage if you fully understand them, are aware of contract traps and consider your specific circumstances and future needs. However, our shadow shop showed there’s a danger of coming across mortgage brokers and salespeople who don’t give you all the information you need to make an informed decision.
CHOICE wants to see improvements to the standards for product information and contract conditions urgently, to protect elderly consumers from getting into financial danger at a time when they could be frail and vulnerable.
CHOICE is deeply concerned about our findings. We will be lobbying all state governments to adopt the new NSW mortgage broker legislation which:
- Ensures all mortgage lenders have a licence and a dispute resolution scheme.
- Requires that all advice on reverse mortgages meets a minimum standard.
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