Reverse mortgages can be very expensive

25/08/2010

A reverse mortgage provides an opportunity to access 15 to 40 per cent of your home equity (depending on your age), with the loan repaid when the owner sells up or dies. There can be Centrelink implications and the interest rate and fees are often higher than those of a regular mortgage. The Commonwealth Bank charges an upfront fee of $950 plus interest of 8.46% for its reverse mortgage for over-65s. St George Bank’s Seniors Access Loan (available if you’re aged over 63) charges 8.43% with an upfront loan fee of $950.

If a retiree owning a home worth $400,000 takes out a reverse mortgage for just $50,000 at age 65 at 8.5% with monthly fees of $12 and upfront fee of $900 and the property grows in value by 4% each year, by the time the home owner is aged in his mid-80s, the home will be worth around $871,000 and the loan will have grown to about $248,000. The ASIC website at www.fido.gov.au provides a free booklet on reverse mortgages plus a handy online calculator that shows how the loan can impact your home equity over time. Don’t sign up for a reverse mortgage without getting independent professional advice from your accountant or lawyer.

Source: Coolum and North Shore Times