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Reverse Mortgages High Gear

The collapse of Westpoint property entities and substantial losses faced by a large number of retirees, appears to have launched ASIC into high gear on educating people about Reverse Mortgages. These are relatively new products in Australia but have been used overseas for some years - there are now 18 providers whereas there were only 3 two years ago. It’s like a normal owner occupied mortgage but you generally make no payments of capital or interest until you die or voluntarily move out.

The power of compounding of the unpaid interest and unpredictable future longevity and house value change, means these are much more highly geared financial situations than most people will have encountered in their life time. Whilst in theory a ‘no negative equity’ guarantee might give some comfort for living too long, the fine print of contracts and possible insolvency of the lender may still lead to a knock on the door when people are least able to deal with it. You can find out more at http://www.fido.asic.gov.au/fido/fido.nsf/byheadline/Reverse+mortgages You can also see the effect of using a reverse mortgage in the FinDem Retirement Simulator.

Posted Saturday, 25 February 2006

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