Debt consultants are concerned at the growing number of retirees who are failing to adapt to living on reduced income. Some are steadily accumulating massive debt as they try to continue their former lifestyle - and in some cases this has led to suicide from despair.
The finance industry has offered a scheme labelled " Reverse Mortgages " to cater for those who are asset rich - but cash poor. Basically, this enables the owners of high value property such as the family home to borrow against that asset to provide cash to supplement superannuation or pension payments.
It is often referred to as a " loan without repayments ". That is true in the essence that the financier calculates that - due to the age of the borrowers - if financial conditions do not change there is enough equity to sustain the cash flow until the borrower is deceased. At that time, the financier recoups the loan money - plus the interest that has accumulated over the life of the loan.
And thereby lies the danger.
If Australia encountered a sharp rise in inflation and as a result interest rates rose to the level of a decade or so ago - somewhere near 17% - the sustainability of the asset to support the level of debt could quickly reverse - and the borrowers could find themselves without both the home and the flow of supporting cash.
Reverse Mortgages are an idea that could be appropriate in some cases, but borrowers considering them would be well advised to consult a good financial adviser and have the small print explained. Like all things financial, it is a good idea to fully understand what is involved before jumping in the deep end.
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