When asked if the reverse mortgage had performed as expected, 26 of the 29 borrowers answered with an unreserved “yes,” however, two borrowers noted that, although their loans were not yet three years old, they had already exhausted their line of credit and other borrowers worried that they would “run through the money” much faster than anticipated. One borrower likened the $100,000 line of credit to the credit limit on a card that had no repayments; another, after running through a six-figure sum in two years, was forced to downsize to a much small home to repay his loan.

Obviously these individuals could not qualify as the world’s best budgeters, and equally obviously, lending institutions have enough to do without overseeing their borrowers’ spending habits. However, even for the best of accountants, it is inherently difficult to estimate the total sum that will be due at the end of a reverse mortgage, because that sum is dependant upon such unknowable factors as future interest rates and real estate values, and the number of years the borrower will remain living in the home in question.

The ASIC report identified several methods lenders could implement to assist borrowers in managing the funds accessed through a reverse mortgage; these include:

•    allowing a percentage of equity to be protected against the loan, to preserve it for the borrower’s future needs;
•    providing borrowers with a monthly statement, detailing not only the current amount owed but also debt in relation to credit limit;
•    including a forecast within the monthly statement, stating the month and year the borrower will have exhausted all available equity at the current average rate of spending; and
•    providing borrowers with personalised projections based upon realistic estimates of real estate values, interest rates, age expectancies, and the amount borrowed.

The Senior Australians Equity Release Association of Lenders (SEQUAL), the not-for-profit industry association of financial institutions writing reverse mortgages, has instituted some of the ASIC’s other recommendations, including bulletproofing the no negative equity guarantee against all possibilities short of willful neglect and fraud, and providing reverse mortgage calculators on lending institution websites that realistically reflect the effect of the loan on the home’s future equity. However, a search of the SEQUAL website did not turn up any action contemplated on the issue of borrower money management. As “all we have is this house” and poor money management has made at least one borrower lose his home, this seems an issue worth their time.