Reverse mortgages have yet to take off around the world, but a nation with a minimal product recently introduced a new player.
The concept of the reverse mortgage product begins to expand in South Africa with the entry of a new lender offering the product, citing a report released earlier this year by the World Bank highlighting the product category’s potential for alleviating tight finances Seniors worldwide.
However, according to the details given, the variant is by no means identical to a typical American Home Equity Conversion Mortgage (HECM).
“Water Financial lending firm, led by financier and former COO of Twenty20 Bank, Chris Loker, has launched the financing solution for single retirees over 75 who own and qualify,” a report said Published week of South African News was Outlet Independent Online (IOL). “The Home Equity Funding Plan gives retirees access to a percentage of the equity in their home while retaining full ownership. The loan will be paid when the house is sold or the person dies, and the interest rates are much lower than unsecured loans. “
The specific product variant “Freedom Finance” will be offered to qualified homeowners on the Atlantic coast of Cape Town and will be rolled out across the country over time, the report said.
As costs rise for beneficiaries of the South African retirement system, the wider economic shock of the COVID-19 coronavirus pandemic has exacerbated challenges related to rising living costs and medical expenses, Loker said.
“It’s hard to see parents struggling, and struggling with cash flow is stressful for older people – especially when they’re wealthy,” says Loker. “Instead of reluctantly selling their homes, they can now apply for a home-secured loan that is renewed in several monthly installments. […] Retirement should not be a time of deprivation, thrift and regret. “
The story points to a Report published earlier this year from the World Bank, who demonstrated that reverse mortgages around the world can be a viable tool to improve the lives of older citizens worldwide.
“The scientific literature on the subject suggests that reverse mortgages (RM) can be a welfare-enhancing tool to supplement retirement income or as a form of insurance,” the paper says. “Older, low-income homeowners in particular can tap into their accumulated real estate assets to smooth consumption and increase their resilience to financial shocks.”
However, wider dissemination of the product category is hampered by what researchers call “universal barriers,” including the inevitable product complexity that makes it difficult to achieve prices and regulations, and the desire for a senior to leave their home to an heir, could limit demand paper disputed.
read this story at IOL.