Money

Reverse mortgages: good and bad

Noel Whittaker
Noel Whittaker

INCREASING living expenses mean that many Australians who retire in the next 30 years are going to be doing it tough. 

One way out is to sell the home and rent, another is to take out a reverse mortgage - a loan where there is no obligation to make repayments of principal or interest.  

I like reverse mortgages, if they are used properly, but, as one man I will call Ted, found out, it's very easy to get caught.  He and his wife took out a reverse mortgage in 2007 with a limit of $40,000 and drew it down by instalments to minimise the interest.  To protect himself from rate rises he took an interest rate of 9% "fixed for life".

By 2011 the debt had grown to $47,000, which seemed reasonable in the circumstances, but things took a turn for the worse when his wife died and he decided to move to a more suitable property

This involved paying out the loan but he was horrified to discover that the reverse mortgage provider wanted a "break fee" of $35,000 in addition to the sum owing.  This turned a $47,000 debt into an $82,000 debt.

This was the price of fixing the interest rate.

If rates had gone in the other direction the breaking of the loan contract might have worked in his favour -  he may have got a refund.

So what are the lessons here for anyone who has to resort to a reverse mortgage?  In hindsight, the biggest risk Ted took was the fixed rate loan, which means that retirees may well be safer with a variable rate than a fixed one.  If a variable rate is chosen, borrowers should delay drawing down the mortgage for as long as possible to minimise interest and to reduce the potential term of the loan. 

Also, the essence of a reverse mortgage is it enables the parents to spend money that would normally be left to their children.  If the children can afford it, they should chip in and pay the interest on their parents' loan, so the debt does not increase.

Topics:  noel whittaker



Pennant three-peat for Coffs

TRIPLE TREAT: Coffs Harbour's Division 1 pennant golfers (l-r) David Rook, Jack Pountney, captain Shane Cutmore, Mark Brindle, Jack Goldsmith, Dan Swain and Tim Hyland celebrate the team's third straight MNC District title.

Coffs Harbour wins MNC District Golf's Division 1 pennant.

World's longest torch relay makes pit stop in Coffs

The Peace Run team will arrive in Coffs this Wednesday, May 31.

World's longest torch relay promotes world peace.

Driving jobs and support for headspace

CHESS CEO Paul Kelly and Headspace Coffs Harbour manager Shelley Rowe.

Jobs Change Lives campaign raises $12,000 for headspace

Local Partners

National Sorry Day: Reflecting on testing times

CRANES acknowledged National Sorry Day at the Saraton Theatre on Friday with a film and talk by Paul Dutton, who was taken away from his family as a child


What to expect at Birds of Tokyo's Ipswich gig

The band will perform at the Racehorse Hotel on Friday.

BAND member Glen Sarangapany talks music, pub grub and doing shoeys

Petula Clark delighted to sing live for Australian fans

STILL TOURING: English singer Petula Clark is coming to Queensland.

English star Petula Clark still puts on a great show, even at 84.

Do you really know your road rules?

Cars travel around the roundabout at Villiers and Fitzroy Street. Photo Adam Hourigan / The Daily Examiner

List of the top 10 most misunderstood road rules in NSW.

Six things you never knew about Men in Black

IT’S been 20 years since Men in Black first hit cinemas. Makes you feel old, doesn’t it?

10 strange stories behind famous sex scenes

Khaleesi and Khal Drogo in a steamy moment.

Every set has their own way of filming sex scenes

HBO spills new details on Game of Thrones’ final season

Game of Thrones’ eighth and final season will only have six episodes.

New details about what to expect from the eighth, final instalment.

Karl’s rant on Corby: ‘Made to look like idiots’

Karl Stefanovic is sick of hearing about Schapelle Corby.

Today co-host launched a tirade against Schapelle Corby media circus

Shot at the live shows slips through Sally's fingers

Sally Skelton and Bojesse Pigram pictured after their battle performance on The Voice.

Sunshine Coast singer's dramatic elimination from The Voice

Gympie's Caitlyn Shadbolt releases debut album in concert

Caitlyn Shadbolt has launched her debut album in a concert at the Gympie Civic Centre on Sunday afternoon.

Caitlyn Shadbolt releases debut album in Gympie concert

Ben Stiller and Christine Taylor split after 17 years

They were married in May 2000 and have two children, who they said will remain their priority.

Ben Stiller and his wife Christine Taylor have called it a day

This is real estate's billion-dollar man

Bob Wolff at AREC with John McGrath of McGrath Real Estate.

They don’t call him the “Billion dollar man” for nothing

Man's amazing comeback from monster crisis

Pat O'Driscoll agents Penny Keating and Doug Webber sold 56 Agnes St, The Range at auction over the weekend.

NOT long ago, he sold his possessions to pay staff. Now he's back.

Jetty views don't come any better than this

Property Camperdown St

The Real Estate Property Guide is online now

Kids will love living in this new Coffs Harbour estate

FAMILY FRIENDLY: This children's playground is the latest family-friendly feature of the Elements@Coffs estate.

Local land estate unveils newest family friendly feature

How Toowoomba house prices compare in Australia

For sale sign in front of home.

Here's what $700,000 will buy you in Toowoomba, Brisbane and Sydney

Ready to SELL your property?

Post Your Ad Here!