Harry Senlitonga
The best reverse mortgages are provided by ABN AMRO and Bluestone, according to a new star-rating report, which is expected to take much of the hard work out of choosing the best product for your clients.
The Cannex research report, which evaluated 17 lenders offering 55 reverse mortgage products, awarded five stars — the highest rating — to only two providers for products described as “superior” by its researchers.
The leading providers, ABN AMRO and Bluestone, offer six variations of their reverse mortgages, all with protected equity written in.
ABN AMRO’s suite covers variable rate, fixed for life and four separate fixed-term loans, and Bluestone offers variable capped interest rate loans with different pricing structures for lump sum drawdowns and instalments.
And while a product’s interest rate needed to be competitive to receive a top rating, Cannex took into account minimum loan amounts, the maximum loan-to-value ratio, protected equity, ongoing valuation, redraw, split-loan and portable-loan facilities when awarding stars.
Providers rated with four stars, and offering “exceptional value” products, included Australian Seniors Finance, Macquarie Bank, Over Fifty Group and Vision Equity Living.
The report’s release is timely considering recent growth in the $1.81 billion-sector as retirees embrace such products with more gusto each year.
For plenty of equity-rich, cash-poor Australians, the family home is their main asset. Many are recognising that kicking a mortgage into reverse will free-up finances, allowing them to afford a renovation or to live more comfortably.
However, Cannex senior financial analyst Harry Senlitonga urged advisers and retirees to keep in mind the multiplying factor of compound interest on a reverse mortgage.
“Interest is capitalised every month and the loan amount will quickly add up, so it is important to carefully consider the cost before signing up to a reverse mortgage,” he said.
Half a percentage point difference in interest rate can make a big difference to the amount owed, according to Senlitonga, who also recognises the importance of features that safeguard the interests of a borrower when assessing the merits of a reverse mortgage. Cannex will not consider products without an equity protection guarantee, and indicated that this feature should be mandatory for borrowers looking to ensure the loan will never exceed the property in value.
“Having the home sold out from underneath them or bequeathing debt to the family is a retiree’s worst nightmare, so it is imperative to include a no negative equity guarantee,” he said.
