Reverse Mortgage Watch has written about the new government reverse mortgage information service, ERRMIS, before . This is a free service provided through the National Information Centre on Retirement Investments (NICRI) that’s designed to help Australian seniors make more informed choices about equity release finance. In a coup for Reverse Mortgage Watch, we’re delighted to bring you an exclusive interview with the director of ERRMIS, Wendy Schilg.  

RMW: You’ve been up an running for a 4-5 months now, how has the public response been to the launch ERRMIS?Wendy Schilg: The response from the public has been really positive. The service has filled a much needed void in the market, and people have been relieved to find an impartial consumer organisation that provides independent information. To enter into a reverse mortgage is a major decision and obviously an emotional experience for many retirees. I think that our service offers support to people during the decision making process. As one caller said in a letter “Thank you so much for all your help - you have kept the nervous break-down at bay for the moment”  RMW: What are the main questions or issues that people are calling with?Wendy Schilg: Safety is the main issue people want to talk about. Questions may relate to any potential decreases in the pension as a result of the mortgage, the amount of interest that will accrue on the loan, who the providers are and what to look out for in the contract. We also have a lot of people new to reverse mortgages who want a 10 minute Reverse Mortgage 101 course.   Callers with a reverse mortgage, or about to take one out, will often have technical or specific questions – there are great calls to receive as they give us a greater insight into the various providers and product features. 

RMW: How many calls are you taking a week at the moment?Wendy Schilg: We are averaging around 150 calls per week. It was really busy for a period in late April as a result of an article in the Centrelink publication News for Seniors, but has settled down again. At one stage we were taking over 200 calls per day – quite a bit considering that there are only 2 information officers looking after the service!

RMW: From your discussions with consumers, what do you think industry (brokers, lenders and government) can do better?Wendy Schilg: We have made a submission to the Henry Review, and also provided Government Ministers with briefings on areas we think can be improved within the industry. These include: better disclosure of break fees – a recommendation SEQUAL has already acted upon; tighter regulation of reverse mortgage providers who leave the market but maintain services to existing clients; and clearer terms and conditions documents. The Government will be looking to enhance regulation and disclosure of the Reverse Mortgage industry by mid 2010, and we will continue to work with them by providing caller feedback and raising issues. 

RMW: What does the future hold for ERRMIS?

Wendy Schilg: The Federal Government originally funded ERRMIS for a 6 month pilot. The pilot is due to end within the next few weeks. Obviously we hope to maintain the service indefinitely and we are in talks with the Government for ongoing funding. Demand and feedback has indicated that ERRMIS is well needed, and I think the Government recognizes that ongoing independent support for retirees entering into reverse mortgages is essential.

 Thanks to Wendy Schilg and ERRMIS for their contribution to Reverse Mortgage Watch. Call ERRMIS on 1800 615 676. Readers can also download their free guide here and Reverse Mortgage Watch’s free consumer reports here.   For help comparing the lenders, call Seniors First on 1300 745 745 (Disclosure: the editor of this site is Managing Director of Seniors First)  

In order to support competition in the Australian mortgage market, late last year the federal government introduced $8 billion of funding for non-bank lenders and small banks under a scheme known as “RMBS”. This  scheme is designed to assist lenders who predominantly source their funds from the wholesale credit markets that have largely dried up as a result of the global financial crisis.

The peak industry body for the reverse mortgage industry, SEQUAL, has recently made a submission to government requesting access to this funding scheme for reverse mortgage lenders. SEQUALCEO, Kevin Conlon said that the global financial crisis had ”…constrained the ability of some reverse mortgage lenders to access funding and the effect of these conditions  is that a number of SEQUAL members have either withdrawn from the market or significantly scaled back their participation.”

Reverse Mortgage Watch supports SEQUAL’s request for RMBS funding. If successful, this will increase the number of active lenders offering reverse mortgages, and likely provide more choice and a better outcome for consumers. Stay tuned for more developments on this.    

When contemplating a reverse mortgage it is good practice to do ‘equity projections’ using the FIDO reverse mortgage calculator.

This FIDO reverse mortgage calculator is provided by the consumer arm of the Australian Securities and Investments Commission (ASIC), and is a highly useful tool for working out how much your reverse mortgage might be worth in the future. It also projects future property growth at high, low and medium levels so you can in effect work out your ‘net equity’ at any given time.

(’Net equity’ is the amount of money you would have left after selling the house and paying back the reverse mortgage loan at any time, either during your lifetime or after you’ve passed away).    

By loading in the loan amount, your age, gender, current interest rate and likely annual rate of property growth, the FIDO reverse mortgage calculator will immediately project how much equity you will have left up to the age of 120!  You can also find the FIDO reverse mortgage calculator here and here. 

A new study by Royal Bank of Scotland has found that a third of all reverse mortgage funds are used for home renovations.

“Forget over-the-top purchases, these are asset-rich/cash-poor people simply trying to make ends meet,” says RBS Reverse Mortgages, head of reverse mortgages, Martin Lynch. More than 32% used the payments for renovations, while 18% used the money for income, 15% for a car purchase, 8% for travel, 6% for financially helping family, 4.2% for a rainy day facility and 2.41% for medical bills.

About 98% of reverse mortgagees surveyed would recommend a reverse mortgage to family and friends.

Australia’s reverse mortgage industry is worth $2.5 billion, according to the May 2009 Deloitte SEQUAL Reverse Mortgage Study. It is currently growing at 23%. It is estimated that by 2020, 18% of Australians will be aged over 65.

According to the study the average value of reverse mortgage is $60,000.