The corporate cop issues a stern warning to lenders offering reverse mortgages

THE value of reverse mortgages has doubled in Australia the past decade, with many customers unaware of what they’re getting into, according to the corporate watchdog.

THE value of reverse mortgages has doubled in the past decade prompting the corporate cop to raise the alarm.

In a new review of the industry, the Australian Securities and Investments Commission found borrowers have a poor understanding of the risks involved and the future costs of their loan.

A reverse mortgage is common among older Australians as it allows them to borrow money using the equity in their home.

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The loan does not need to be paid back until a later date.

New figures show consumer demand for reverse mortgages has drastically increased since the global financial crisis, climbing from $1.3 billion in March 2008 to $2.5 billion at the end of the 2017.

In the ASIC review it analysed data on 17,000 reverse mortgages and also examined lender policies and procedures.

Reverse mortgages often attract interest rates above six per cent.

ASIC’s deputy chair Peter Kell sent a stern warning to lenders that more needs to be done to help borrowers understand exactly how these products work.

“Reverse mortgages can help many Australians achieve a better quality of life in retirement,’’ he said.

“But our review shows that lenders and brokers need to make inquiries that would lead to a genuine conversation with customers about their possible future needs, not just a set of tick boxes on a form.”

ASIC said the borrower’s long term needs and financial objectives are not properly scrutinised when signing up to these loans.

Lenders who have offered reverse mortgage loans include the Commonwealth Bank, Westpac, Bankwest, Heartland Seniors Finance and Macquarie Bank.

Westpac and Macquarie Bank have since stopped offering them.

Reverse mortgage loans are a more expensive form of credit than a typical home loan.

Interest rates are usually above six per cent and no repayments are required.

This results in the interest on the money drawn down attracting compounding interest.

The report also found reverse mortgages are an opportunity for lenders to reduce the risk of elder abuse.

@sophieelsworth