Reverse mortgages getting a bad rap

My hippy parents are annoyingly young. The sort of annoying that occasionally has them mistaken as my older brother/sister in public.

By today’s standards, they had me before they were even really adults. They both had change out of a quarter of a century when I was born. My Gen X cohorts are the opposite – we refused to grow up until we hit 30.

When I left home at 21, my parents were roughly mid-40s.

My parents’ new-age, vitamin-pill-popping, organic-food-eating, hobby-farm lifestyle means they might well live forever. My dad has always threatened he would hang around to haunt us until he was 120. Apparently for no other reason than he wants to play a round of golf that’s less than his age.

But even if the old buggers only achieve average lifespans, I’ll be in my 60s before I get my hands on their loot/my inheritance.

How unfair is that? I think it’s outrageous, scandalous even, that I can’t rely on them falling off the perch to pay off my mortgage, educate my kids at some posh school, or take control of the income streams from their property investments so I can retire early.

There ought to be a law against it. Bloody Baby Boomers. THE SELFISH BASTARDS!

No, actually, that would be “selfish me”. Which I’m not. I would like my parents to hang around forever. If I never see a cent of inheritance because they’re still around … brilliant.

I hope that they use the money they’ve saved and invested to enjoy getting old and grumpy. I hope they grow old disgracefully, spend the kids’ (my) inheritance. Just no hemp clothing, okay, you old hippies?

And if that means having to take out a reverse mortgage to get a reasonable quality of life in their last decade or two, to spend down the equity they’ve built up in their home, then so be it.

Why do reverse mortgages get such a bad rap? Sure, the early versions of this line of product were pretty bad.

But they’ve come a long way. Regulation has addressed many of the concerns, particularly in regards to negative equity guarantees. Lenders and mortgage brokers are now also required to provide other important financial warnings also.

Reverse mortgages serve an important purpose in allowing people to spend some of the wealth they’ve created/saved over a lifetime, without actually having to sell the asset.

And let’s face it. Home is not just an asset. It’s that feeling of security, warmth and memories built up over, often, decades. Leaving or selling would often be hugely saddening and stressful.

Some people have almost all of their wealth invested in their homes at retirement. Others might first spend down their superannuation balances before finding themselves in the situation where their home is their only major asset.

Your home, no matter how splendiferous, does not provide income to buy food.

You can’t eat home equity. Home equity won’t pay the bills. It won’t pay for the cruise holiday down the Danube. It won’t pay for arthritis medication, or the replacement knee operation from bending over so often to tee up. Please note the golfing health risk, Dad.

But a reverse mortgage can.

It’s true that selling the house and investing the money elsewhere will too. But then you don’t have a place to live and will need to pay rent.

A reverse mortgage can potentially deliver you an ongoing income stream to supplement your other income. Or it can deliver you a lump sum.

However, reverse mortgages are far from perfect. Judging by the warnings on the Australian Securities and Investment Commission’s website about these products, the regulator still has serious concerns about the product offerings of some elements of the industry.

And, absolutely, this is a product suite that demands greater levels of protection for consumers.

Many, though not all, of the potential clients won’t have had a bank loan for decades. They might be out of touch with many aspects of modern banking. And this is a complex product that requires advice.

ASIC recommends those considering a reverse mortgage to use a mortgage broker (rather than going direct to an individual lender) and speaking to a financial adviser.

Of themselves, reverse mortgages aren’t evil. But your devil-child spawn trying to talk you out of one, because of the impact on their inheritance, might be.

Bruce Brammall is the author of Mortgages Made Easy and managing director of Bruce Brammall Financial. E: bruce@brucebrammallfinancial.com.au.