the loan
The Age
Saturday March 26, 2011
REVERSE mortgages are an attractive option for cash-strapped people who want to access some of their home equity to increase disposable income, undertake renovations or pay off debts. But consumers who misunderstand the loan's long-term costs risk landing in serious financial hardship.Consumers who sign up for reverse mortgages typically needn't pay back the amount they borrow or the interest until they leave their home or die (the sale proceeds are then used to pay back the lender and the remainder becomes available to the borrower or beneficiary) but factors such as fluctuating interest rates and house prices mean some borrowers can ultimately wind up owing their lender more than the value of their home.A "no-negative-equity guarantee" protects borrowers from having to pay off any debt that extends beyond the value of their home but Dr Justi Roseman, special counsel at law firm Blake Dawson, says the fine print attached to NNEGs can vary within the reverse mortgage sector and the circumstances under which lenders may invalidate a NNEG aren't obvious."That said, if you look for a lender who is a SEQUAL (the peak industry body for the Australian equity release market) member, the terms attaching to your NNEG (and the loan itself) will not vary much between SEQUAL-compliant lenders," Roseman says.Borrowers can invalidate NNEGs by failing to maintain a property, paying council rates late, not paying for a property valuation or failing to inform the lender that others are living in the house. In some of these circumstances, lenders may be entitled to force consumers to pay higher rates of interest, repay the loan or sell their home.Borrowers who approach SEQUAL-compliant lenders are protected by some safeguards however."SEQUAL members require borrowers to seek independent legal and financial advice (particularly as these products also have knock-on effects upon the borrower's Centrelink entitlements and estate/ estate planning)."
© 2011 The Age
