InFinance --- Page: 21-22 : March 2007 Original article by Duncan Rawlinson
ABIX Summary
Many older Australians will use a reverse mortgage to gain more money as they grow older. They take out a loan, based on the value of their home, which does not have to be repaid until they die or the house is sold. Some reverse mortgages have a "no negative equity guarantee", which assures the consumer that he or she will never owe more under a reverse mortgage than the proceeds of the sale of the home. There are risks for the lenders of reverse mortgages, and these risks have to be managed. The risks include the longevity risk, where the older person lives for a very long time, and the valuation risk (where the property does not rise much in value over time). A lender must manage these risks.
