Despite the growing popularity of reverse mortgages in Australia, many borrowers are still in the dark about how the product works and the risks involved, a new report has shown.

A survey on reverse mortgages conducted by the Australian Securities & Investments Commission (ASIC) revealed that almost half of the respondents didn't know how much the loan was likely to cost them over time and more than half were unaware of the serious consequences involved in breaching loan conditions.

The report showed that very few borrowers have done long-term planning about how their financial needs might change over the next 10 to 15 years. Some borrowers said they have difficulty budgeting, while others found the constant availability of credit hard to resist.

The report noted that a small number of respondents were already expressing regrets about how they had used their reverse mortgage and how quickly they had exhausted the funds they had borrowed.

"While reverse mortgages can be a useful way for older people to access equity on their homes, the products have significant risks," said Greg Tanzer, ASIC executive director of consumer protection. "In the right circumstances, a reverse mortgage might assist an older person. However, these products have unusual features."

Tanzer advised borrowers to think carefully about their situation before using an equity release product. "They need to select a suitable product and use it in a way that suits their overall needs," he said.

SEQUAL, a not for profit member organisation which sets consumer safeguards, has called for better consumer education to prevent financial mishaps.

"It's important to offer protection to seniors, but more important to invest in their long-term financial literacy," said Kieren Dell, executive director, SEQUAL. "A reverse mortgage can be a lifeline for a cash-poor, asset-rich retiree, and offers them an option to help them live in dignity in retirement."

Clinton Bishop, chair of equity release specialist Fortus, agreed, urging seniors to bypass brokers who are not SEQUAL accredited and don't adhere to a strict code of conduct safeguarding retirees.

"Brokers play a significant role in discussing the long-term financial issues facing the retiree as well as recommending specific products," he said. "At a minimum, brokers should undertake an analysis that considers the retirees' current financial situation as well as their long-term needs."

Craig Swan, director, Seniors Equity Direct, said the report needed to be read in context. "It's a very small survey population of about 30, with a very narrow band of lenders." Swan said it also seemed that the specifications in the report were based on borrowers who had dealt directly with a lender, with less of a focus on intermediaries.