Baby Boomers cashing out their home equity

Seniors borrowed $560 million in reverse mortgages in 2006
Older Australians took out $560 million in reverse mortgages in 2006 - a lift of 80 per cent over 2005 , according to a study released yesterday.
Despite what appeared to be rapid growth, Keiren Dell, executive director of the Senior Australian Equity Release Association of Lenders (SEQUAL), said it was at the lower end of his expectation.
"I had expected growth to be at least 100 per cent," he said, adding that the volume of lending in reverse mortgages could easily double in the next two years.
"The first baby-boomers reached 60 a couple of years ago and some had started to take out equity from their home for renovation or buy a new car."
Funding retirementIn fact, the fastest-growing segment (albeit from a low base) was the 60-69 age group, said Trowbridge Deloitte partner James Hickey, who led the reverse mortgage study for SEQUAL. However, the largest group of borrowers were in their 70s.
"We estimated 1 to 1.5 per cent of seniors in Australia use reverse mortgage," said Mr Hickey.
The total number of households taking out reverse mortgage is 27,000. They took out an average of $54,200.
Mr Hickey said they borrowed 70 to 75 per cent of what they could borrow on their homes.
While lump sums remained popular, Mr Hickey said about 20 per cent of the loans were taken out as "income streams" in regular drawdowns.
Mr Dell said variable rates were the most popular type of loan currently used.
But 25 per cent of new loans were written at a fixed rate, up from 22 per cent in 2005.
With new entrants - including Bluestone, Macquarie Bank, ABN AMRO and Australian Seniors Finance - Mr Hickey said the market was set to grow.
Lending is based on the age of the borrowers and the value of the property, ranging from between 10 and 15 per cent of equity for those aged 60, to 40 per cent for people over 80.
NSW leads borrowingThe study found that 41 per cent of reverse mortgages were taken out in NSW, compared with 20 per cent each in Victoria and Queensland.
It said that 80 per cent of the loans were made to borrowers living in capital cities and that houses made up 80 per cent of assets used in the transactions.
Source: The Australian