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Reverse mortgages: easy income or wealth erosion?

Updated: Jun 4

reverse mortgage
Be careful when considering a reverse mortgage

NRMA Living Well Magazine: 19th November 2014

It may seem like an attractive source of funds - but does tapping into your equity sooner mean shortchanging yourself down the track?

Quite possibly, says Sydney certified financial planner Peter Horsfield, who believes reverse mortgages can be a dangerous form of wealth erosion for the unwary.

If you're being charged interest and not making repayments, the balance of the loan will balloon over time, Horsfield says. So more to spend now is likely to mean less in reserve for aged care when and if you need it, or other essential requirements later.

According to the Commonwealth Bank, a reverse mortgage of $50,000 at a fixed interest rate of 8.5 per cent will increase to $272,060 in 20 years, if no repayments are made.

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