In a surprise move, the Reserve Bank of Australia last week announced a 1.00% cut to the official cash rate in response to the worsening credit crisis.

This is welcome news indeed for seniors who had previously seen their reverse mortgage interest rates nudge 11% in some cases. With the reverse mortgage banks and lenders passing on about 0.80% of the Reserve Bank reduction, some borrowers can now expect their rates to be as low as 9.35%.   

Better still, I predict further cuts of about 1% over the coming months. As reverse mortgage interest rates begin to reduce, reverse mortgages will become an increasingly attractive option for Australian seniors facing investment losses on superannuation and shares.

More bad news for seniors unfortunately. As if recent huge drops in the values of share portfolios and super funds owned by Australia seniors was not enough, reverse mortgage lending has now has also begun to feel the pinch. Last week reverse mortgage funds got harder to obtain for many people with the news that several prominent reverse mortgage lenders have significantly tightened credit policy. 

This will particularly impact those senior borrowers aged 60-70 years, with some revers mortgage lenders now only advancing 10% of the home value for sixty year old seniors borrowers (compared to 15% previously). Although these changes are limited to only a few reverse mortgage banks at the moment, others are likely to follow soon with similar announcements.

As a result of the changes, an Australian senior aged 65 with a home value of $350,000, would have the total amount they could borrow reduced by $17,500.  

If you are under 75 and thinking about accessing some of the equity in your home with a reverse mortgage loan,  you should perhaps consider moving quickly before too many other lenders also tighten their credit policy.