It's a mortgage aimed directly at asset-rich but cash-strapped people over the age of 60 who may want to go on vacation or buy a new car or renovate but don't have the money.
However, these reverse mortgages, which do not require monthly payments, can have disastrous consequences.
Trevor and Stewart Pitt (Trevor and Stewart Pitt) had to sell their parents' home in 1958 this weekend to repay the reverse mortgage, knowing it would happen sooner or later.
"We knew it would end up like this." "the day of the moving truck was probably the hardest day of our lives," Stewart told 9.
A few years ago, his parents borrowed a reverse mortgage and thought it would be better. At that time, they were in Linqu part of the elderly gold, feel that when they die, the house is just able to repay the loan.
The two sons also supported the move because they wanted their parents to live as comfortably as possible later in life.
"this property right loan allows them to live a good life and buy something." "but it keeps accumulating [interest rates]-it's the negative side," Stewart said.
This caused the two sons who inherited the property to have to repay five hundred thousand yuan.
The Australian Securities and Investment Commission, (ASIC), warned that reverse mortgages were complex and could have a significant impact on post-retirement finances, emotional relationships and quality of life.
It conducted a survey of the industry and will publish its findings in the coming weeks.
"ASIC found that some retired Australians apply for reverse mortgages to slightly improve or maintain their quality of life, but they should still be cautious about long-term risks."
Borrowers should always seek independent financial advice.
How loans work
You borrow money by using residential property rights as guarantee, and you can get one-time payments, fixed income, credit lines, or a combination of the above.
Loan rates are higher than normal mortgages (currently above 6%) but you don't have to pay back monthly.
Interest will be accumulated together and added to your loan balance.
The loan must be repaid in full when you sell your house or when you die, or in most cases, when you move into a nursing home, including interest.
The ASIC warned that "debt will grow rapidly" because it counts as compound interest.
If they borrowed $50, 000 in reverse mortgages at the age of 60 at 10 percent interest, they would owe $ two hundred and thirty one thousand nine hundred and ninety nine at age 75, and if they lived to age 90, they might eventually owe $one million forty thousand nine hundred and ninety nine.
Australia introduced laws in 2012 to prevent loans from exceeding property value, but this does not necessarily apply to all reverse mortgages signed before September 2012.
Canstar's Micenbeck (Steve Mickenbecker) said reverse mortgages may be useful, but there are also risks. He said: "the risk is that your property rights are reduced to the point where you lose flexibility at the next stage of your life, or your heirs will not have the right to inherit what they expect."
Some people can't even afford a deposit to move into a nursing home.
Reverse mortgages are usually limited to between 25% and 30% of home value.