The National Information Centre on Retirement Investments Inc (NICRI) has criticised suggestions that retirees whose principal residence is valued at over $1m should not receive the aged pension but rather fund their own retirement using instruments such as a reverse mortgage.
NICRI is concerned that retirees will be forced to take up reverse mortgages – products not suited to all people or situations. Last month NICRI launched a reverse mortgage information service for consumers, and calls to date have shown that reverse mortgages can be a poor choice for some retirees.
“We have found that you have to be a certain type of person to take on a reverse mortgage.” Director of NICRI, Wendy Schilg says. “Some people dislike the compounding interest that eats into the equity of their home over time; others have wanted to sell their home and have encountered break fees in the tens of thousands of dollars. Retirees are a vulnerable part of our community, and to assume that a reverse mortgage would be suited to everyone is just wrong.”
“Some callers have told us of their feelings of regret and anxiety resulting from their reverse mortgage. One caller is physically ill when she thinks about her decision to use a reverse mortgage, and an elderly gentleman has spent the past three months in battle with his provider over an exit fee costing well over $30,000. Retirees need to be aware of all the elements of a reverse mortgage to determine if it is suitable for them. While forcing people into these products would result in a lesser burden on social security, we would end up with many stressed retirees.”
Schilg is also concerned about the principle of Australians being forced to fund their own retirement using equity in their primary residence.
“We should not expect Mr. and Mrs. Smith to lose their pension and be forced to sell part of their house to put food on the table. They have contributed to the taxation system all their lives and their house is so valuable not because they are rich, but because they have owned it for 30 years and property prices have increased. While I understand the intention behind the suggestion, I believe that the recommendation is misguided and will result in detriment to Australia’s cash-poor, asset rich retires.”
NICRI has recently established a government-funded equity release/reverse mortgage information service (ERRMIS) available to provide free and independent information to all Australian retirees. The service has a free publication on reverse mortgages available to all consumers. Consumers can call 1800 615 676 or www.nicri.org.au for a copy of the book or for more information.