In response to the recent credit drought in world debt capital markets, Macquarie Bank has announced it’s withdrawl from all mortgage origination, including reverse mortgages.

Although some new business will continue to be written, it will be at vastly reduced volumes. You can read more about it here

What does this mean for seniors and the reverse mortgage industry?

One less funder means reduced choice for consumers, which is a not ideal. However, there are still many lenders operating in the market who are providing excellent product offerings to senior borrowers. My guess is that there will be a further ‘flight to quality’ amongst consumers. They will naturally seek out the more established lenders, and use specialist reverse mortgage brokers to help them make the right choice.

MFS; Centro, Allco; ABC Learning; City Pacific - just some of the big names that have been battered by the recent share market slump. If you had money invested in these stocks (and many seniors did) you’ve probably seen your retirement investment portfolio take a big hit. Or perhaps your super now looks like it won’t last as long as you had thought?

Either way, you’re not alone. This is becoming an increasingly common problem, particularly for self-funded retirees. Whilst the increase in cash rates is positve for those with money in fixed term desposits,  if you’ve been relying on dividend income then you may now find yourself short.

If however you own property, then it’s very possible you can use your house to bridge the gap. It’s still relatively unknown that seniors in Australia can use a reverse mortgage or equity release plan to give them a regular income stream. Known as an ‘instalment plan’ or ‘income plan’, a set amount is deposited monthly into your nominated bank account.

The benefit of taking a senior’s loan in this fashion, is that the interest is only accumulated very gradually as each monthly payment is received, therefore maintaining equity much longer than if funds are borrowed as a lump sum. In addition, it will also be less likely to have any adverse impact on the government aged pension. 

With the recent spate of interest rate increases, many people who took reverse mortgages through the major banks several years ago are now paying well in excess of 10%.

Fortunately, there are many other lenders who currently offer much cheaper rates, and crucially, no monthly fees. Now is a good time to investigate these options if you think you are paying too much. You might be surprised to learn how much more you could pay over time if you’re stuck with the wrong lender.

As an example, if you borrowed $100,000 as a reverse mortgage loan, based on the current difference in the rates charged by the banks, you would pay over $100,000 more in interest and fees over 20 years with one lender, compared to one of the cheaper alternatives.

Are you paying too much? Check your loan here  

There has been a lot in the news recently about “mortgage stress” affecting families and younger borrowers. However, it now seems to be increasingly affecting older borrowers also. At Seniors First we’ve noticed a recent surge in enquiries from seniors who are looking to refinance their residual home loan and/or credit card debt into a reverse mortgage so that monthly repayments are no longer required.

This can be a good solution for improving monthly cash flow, however in some cases it will not be possible. If the proportion of your existing debt too high, the reverse mortgage lenders’ rules will not allow sufficient funds to refinance (the amount you are eligible for is determined by your age and the value of the property).

This news was picked up by the Sunday Telegraph in Sydney and published on March 9th, 2008. The article is a good one, and you can read it here