ASIC Slams Reverse Mortgages
The Australian Securities and Investment Commission (ASIC) reviewed 17,000 actual reverse mortgages which older people had taken out on their homes.
It found that borrowers had a poor understanding of the risks and future costs of their loan. Borrowers generally failed to consider how their loan could impact their ability to afford their possible future needs.
Lenders have a clear role to play in discussing these future needs, but for nearly all of the loan files which ASIC reviewed, the borrowers’ long term needs or financial objectives were not adequately documented or considered.
The main concern for anyone taking out a reverse mortgage on the home they live in is that their equity reduces to the point where they can’t sell and buy a more suitable home or aren’t able to afford a good nursing home if they need one.
ASIC also noted that consumers had limited choices for finding a reverse mortgage. Several providers withdrew from the market after the global financial crisis.
Consumer demand for reverse mortgages has grown gradually since the global financial crisis The value of reverse mortgages increased from $1.3 billion in March 2008 to $2.5 billion by December 2017.
Currently, the following banks provide reverse mortgages: Bankwest, Commonwealth Bank and Heartland Seniors Finance.