Talk it over
CHOICE member Edward, from NSW, took out a reverse mortgage three years ago when he found out he was seriously ill. He gave each of his children some money from the reverse mortgage and he can still draw down if he needs more money in the future.
Edward spoke to a number of people before making the decision, including the association of reverse mortgage lenders SEQUAL, a financial planner, family and friends.
In the end he chose a provider that does not have any ongoing fees, and he is currently on a variable rate product. Edward thinks the process was "fairly easy and the bank was upfront about everything".
Broken by the break fee
Rick from SA told us his stepmother, Helen, took out a reverse mortgage with Bluestone 18 months ago to give her older children their inheritance well ahead of her death.
She took a lump sum of $160,000 and locked into a lifetime fixed interest rate of 8.89%. The mortgage subsequently grew to $189,000.
Helen recently downsized to another property. She was asked to repay more than $40,000 to switch her mortgage to the new house, which is valued less than her original home.
To their amazement, they found out that if Helen had chosen to try repaying the whole reverse mortgage instead, she would have been charged a break fee of more than $100,000 in addition to the debt she owes.
We contacted Bluestone, who said that because Australia has seen unusually low interest rates lately, break costs have been quite high. Bluestone said under other circumstances it may pay clients a break profit.