ASIC has launched a new reverse mortgage calculator on its MoneySmart website.
Robert Drake, ASIC’s Senior Executive – Financial Literacy said, ‘The calculator is a great tool if you or someone in your family is considering a reverse mortgage. It allows you to test ‘what if?’ scenarios and to understand the financial implications before you decide.’
The calculator shows how much your debt may increase over time and what this may mean for your equity in your home. It also shows how your home equity can be affected by changes in interest rates and house prices over future years.
‘A reverse mortgage allows you to borrow money using the equity in your home as security. You need to be at least 55, often older. You generally don’t need to make any repayments until you sell the house or die.
‘If you decide that a reverse mortgage is the right way to go, you can also use the calculator to explore how much to borrow, including how much as lump sums and how much as monthly payments’.
The calculator has been developed in response to recent legislative changes which will require lenders and mortgage brokers to show customers a range of scenarios using MoneySmart’s reverse mortgage calculator. They must also provide a copy of the projections to the consumer before assessing whether the proposed loan would be unsuitable.
MoneySmart’s tips on reverse mortgages include:
- Be wary of borrowing the maximum – The more you borrow, the more quickly your debt will grow. Leave plenty of spare borrowing capacity in case you need it in future.
- Check the fees and charges – Reverse mortgages charge a higher interest rate than regular home loans. Ensure you understand the total fee package, including establishment and ongoing fees. Ask if you can pay the loan off early and if there are any extra fees involved.
- Ask if there are special terms and conditions – These may restrict what you can do with the money. Find out what happens if you sell your home early or if you sell it for much more than they expect.
- If things go wrong – Ask the provider if they belong to an external dispute resolution scheme, such as the Financial Ombudsman Service. Then you will know where to go if you have a problem with the scheme.
Click here to test the new reverse mortgage calculator and the full range of calculators and online tools.