Selling the family home to pay huge accommodation bonds for residential care places will soon be a thing of the past under the government’s sweeping changes proposed for new consumer credit reform.
Older people will now be able to use the equity in their home to fund an aged-care place through a form of federal government-backed reverse mortgage.
The new changes amend the National Consumer Credit Protection Act 2009.
The family home will now be counted as an asset via a reverse mortgage when calculating a person’s financial capacity to contribute to their aged care.
The draft legislation will offer more protection when dealing with lenders, some of whom ask seniors to pay more than the value of their home.
It will also require better disclosure of the financial consequences of entering into ‘reverse mortgage’ contracts, with a stronger obligation on lenders to take reasonable steps to let a borrower know that they are in default so they can rectify the situation before the lender takes further action.
The changes were proposed in the Productivity Commission’s recent report ‘Caring for Older Australians’.
What is a Reverse Mortgage?
A ‘reverse mortgage’ is an equity release product during which the consumer, usually over the age of 60, borrows money against the equity in their home, in return for a lump sum, line of credit or regular payment. The debt does not need to repaid until the home is sold.
