Large numbers of seniors have little understanding of how to plan for future aged care and accommodation costs.
The ‘Its on the house’ Reverse Mortgage Study commissioned by the Senior Australians Equity Release Association of Lenders (SEQUAL) – the peak body for reverse mortgage lenders – found that 45 per cent of people aged 60 and over were unaware of the costs and fees for aged care.
“There is a lot of confusion about aged care along the lines of what it will cost and whether there will be any places available,” said SEQUAL’s CEO, Keiren Dell.
“The whole aged care issue is very confusing to the uninitiated.”
The SEQUAL study, which drew on interviews with 1000 baby boomers and builders nationwide, found that 31 per cent of retirees expect to rely on their home as a source of retirement funding.
But most of them thought they would be forced to downsize to release the equity from their homes and did not understand other financial options such as reverse mortgages.
“About 80 per cent of the people whom we surveyed had heard of reverse mortgages but only 40 per cent understood the concept,” said Mr Dell.
“Some of them thought that taking out a reverse mortgage meant selling their house to the bank but it doesn’t – it just means they would be borrowing against their home equity.
“Lots of others thought that if they took out a reverse mortgage, they would lose their home equity which is not necessarily the case.”
The report said that superannuation only accounts for 7.2 per cent of the wealth held by over-65 year olds.
At least 60 per cent of retirees’ wealth is held in property assets – usually the family home – and two thirds rely on the aged care pension as their primary source of income.
More disturbingly, 20 per cent of retirees interviewed were still paying off their home and a third of those yet to retire expected to take an existing mortgage into their retirement.
Given these sorts of figures, National Seniors CEO, Michael O’Neill, said reverse mortgages could benefit some seniors.
But he stressed the need for more education and protection for older consumers.
“Reverse mortgages are a very new product in the marketplace and in some places, there is concern about how they are being promoted and marketed because people do not fully understand the consequences of signing up to them,” he said.
“There needs to be a greater awareness of the product and that can’t be achieved by relying solely on reverse mortgage providers.
“Senior consumers need assistance from regulators and government to protect them from those providers at the margins who don’t play by rules.”