 Reverse mortgage trends
Borrowing against the equity in your home is becoming increasingly popular among seniors, especially during the peak of the financial crisis that gripped the world.
The market for reverse mortgage has gained momentum in recent months but is still growing slower than in previous years, according to a study by Deloitte Actuaries and Consultants. Senior Australians Equity Release Association of Lenders (SEQUAL) - the industry body - was also involved in the study.
The market grew 5% in the first six months of the year. The total value of reverse mortgages tipped $2.61 billion and 38, 048 loans.
However by December 31 last year the market was slightly lower at $2.5 billion following a period of 23 per cent growth.
The average drawdown sits at $10,900 with one in seven existing borrowers entering the reverse mortgage market.
"We do see the market growth slowing from what it had been in the past, and that is largely a reflection, quite naturally, of the broader economic environment that reverse mortgages operate in, especially over the first six months of the calendar year," Deloitte's James Hickey said.
While younger borrowers are growing in numbers in this market, the average age for a reverse mortgage still remains 74. The reasons for taking out such a loan may differ among the age groups of the borrowers.
Many people decide to use the equity in their home to repay debt, make home improvements or for income support.
The study looked at how borrowers repay the reverse mortgage and found that 10 per cent of borrowers voluntarily repay their reverse mortgage each year.
This market is relatively new to Australia, introduced at the start of the decade by banks and other lending institutions.
The loan is popular due to its ease of use and flexibility. The funds can be used to pay off other debts or fund investments or purchases that otherwise were out of reach. However, these loans are likely to come with fees and charges so home owners are advised to seek financial advice before taking out a reverse mortgage.
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