The reverse mortgage conundrum: Perspectives of older households in Australia

Abstract

Ageing populations in the Western World over the last few decades have necessitated the development of financial products to assist older people face the challenges of ageing. One such product is the reverse mortgage where homeowners unlock the equity in their residential property through a mortgage loan, secured over the property. These loans normally have no mortgage payments and are aimed at an older demographic. Such mortgages have been increasing in popularity in the United States and the United Kingdom, but growth in Australia's reverse mortgage market has been slow and the majority of financial institutions that once offered such mortgages have left the market. The purpose of this article is to explore reasons for this observation. To achieve this purpose, 31 people aged 65 and older were interviewed about their views on reverse mortgage and analysed using nVivo. Analysis showed that reverse mortgages are unpopular due to strongly negative views about the product itself and perceived the risks associated with them due to the debt and potential loss of assets as well as high interest and charges. While some participants would not enter a reverse mortgage due to a desire to pass on an estate to children, others were ambivalent about this. While this negativity may be overcome through a redesign aimed toward reducing these perceived risks, inherent characteristics as a debt instrument suggest that reverse mortgages are unlikely to be attractive, to the current generation of people aged over 65.