Getting to the heart of it

As more baby boomers retire, demand for reverse mortgages is destined to grow. Here's how you can help clients retire easy

Australia is home to an ageing population. More than a fifth of Australians will be aged 65 and over by 2056, according to projections from the Australian Institute of Health and Welfare. The ageing population, coupled with rising property prices, essentially means reverse mortgages are a product of the times.

“A reverse mortgage is a great opportunity to not only provide excellent customer outcomes but also to provide brokers with a way to expand and diversify their business,” says Andrew Ford, CEO of Heartland Seniors Finance

Reverse mortgages are a tailored solution for people aged 60 and over who want to stay in their own property. They require no regular repayments. Customers can make payments if they wish to, but they are not mandatory until the last resident vacates the property, either by sale, moving into aged care or within 12 months of death. Importantly, the client can continue to own their own home. Interest is added and compounded at the end of each month.

Repaying debt, home care, home improvements and supplementing income streams to pay living expenses are some of the common reasons customers opt for a reverse mortgage. Heartland Seniors Finance offers three reverse mortgage structures: standard for any personal purpose, including renovations; aged care option; and investment property/holiday home as security for any personal purpose. A reverse mortgage loan can also be approved for use for travel, a new car or to supplement income streams, so long as the reason is legal. The product is flexible with lump-sum, regular advance and reserve drawdown options.

For brokers, a reverse mortgage is a longterm ‘sticky’ loan. Loans written a decade ago or more will still stick around in a portfolio, attracting income.

Brokers will most likely delight in the reverse mortgage’s straightforward application process. Reverse mortgages are one of the most heavily regulated financial products in the market, combining regulations with a very rigorous and ethical standard of compliance. This is an advantage when it comes to the application process, as it makes it quite prescriptive.

“When sold appropriately, a reverse mortgage can be genuinely life-changing to our customers and really help them live a better retirement” Andrew Ford

For instance, legal advice is mandatory, so there are no grey areas. That can help when brokers are communicating with customers, as they will know they’re in full compliance with the law. It also protects the client to make sure the loan contract is fair and reasonable, and that they understand their rights and obligations.

“When sold appropriately, a reverse mortgage can be genuinely life-changing to our customers and really help them live a better retirement,” Ford says. “We do have a very thorough and robust fulfilment process that ensures compliance with all the regulations.” 

Once customers see that difference, they become an excellent source of referrals for brokers, he adds. Heartland recently conducted a survey of its customers and found that, of those who responded, 96% of existing customers said they had or would recommend the lender to friends and families. Ninety-four percent said they would recommend a reverse mortgage.

“It’s a powerful source of new business because they know first-hand what a difference it can make,” Ford says.

MPA: What aggregation groups are you associated with, and can brokers still write these sorts of loans even if you’re not on the aggregator’s panel?
Heartland:
We are on some aggregator panels. But as a specialist provider, despite having a market-leading product that is Canstar-awarded, this can be challenging. We are making good progress but many brokers deal with us direct and we off er a training and accreditation process for them.

MPA: Are there any challenges or areas that brokers should look out for when writing a reverse mortgage?
Heartland: 
Exploring the customer’s demonstrated and communicated needs is central to any proposition, whether it’s a standard mortgage or reverse, so ensuring that the customer is taking a loan for the right reasons – that’s the key to it. Being able to work out how to best structure the loan is also important. 

MPA: Why is the interest rate higher than a standard variable home loan rate?
Heartland:
If you look at some of the protection we offer, it’s clear that Heartland takes more risk with reverse mortgages than a bank does with a traditional mortgage. We guarantee that there will never be negative equity, so effectively we have no recourse over borrowers. There is no payment, no cash fl ow for our business, and the indefinite term of it makes it more expensive to fund. That said, our interest rate is very competitive.