Reverse Mortgages Begin Broader Emergence in South Africa

Reverse mortgages have yet to fully catch on globally, but one nation with minimal product has recently introduced a new player.

The reverse mortgage product concept is beginning to emerge more broadly in the nation of South Africa with the entrance of a new lender offering the product, citing a report published earlier this year by the World Bank which contended the potential for the product category to alleviate the stressed finances of seniors worldwide.

The variation, however, is far from identical to a typical American Home Equity Conversion Mortgage (HECM), according to the announced details.

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“Lending company, Water Financial, led by financier and former COO of twenty20 bank, Chris Loker, has launched the financial solution for single retirees over 75 who own a home and who qualify,” according to a report published this week by South African news outlet Independent Online (IOL). “The home equity release finance plan offers pensioners access to a percentage of their home’s equity while they retain full ownership. The loan is settled on sale of the house or death and interest rates are substantially lower than unsecured loans.”

The specific product variation, “Freedom Finance,” will be offered to qualifying homeowners on Cape Town’s Atlantic seaboard and will be rolled out across the country over time, the report reads.

As costs rise for beneficiaries of South Africa’s old age pension system, the wider economic shock of the COVID-19 coronavirus pandemic has exacerbated challenges related to rising costs of living and medical expenses, according to Loker.

“It’s hard to see parents struggling and it’s stressful for the elderly to battle with cash flow – particularly when they’re asset-rich,” Loker says. “Instead of reluctantly selling their homes, they can now apply for a loan secured by their home, extended as multiple monthly payments. […] Retirement should not be a time of deprivation, austerity and regret.”

The story references a report published earlier this year by the World Bank, which detailed that reverse mortgages can be a viable tool across the planet to enhance the lives of older citizens worldwide.

“The academic literature on the topic suggests that reverse mortgages (RM) can be a welfare-enhancing tool to supplement pension income, or as a form of insurance,” the paper reads. “In particular, low-income senior homeowners may tap into their accumulated housing wealth to smooth consumption and increase their resilience against financial shocks.”

However, wider proliferation of the product category is hampered by what the researchers describe as “universal roadblocks,” including inevitable product complexity making them difficult to price and regulate and a desire for a senior to leave their home to an heir could constrict demand, the paper contended.

Read the story at IOL.

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