Consumer Protection Minister Sheila McHale has warned of the potential pitfalls of reverse mortgages.
Reverse mortgages are increasing in popularity because seniors can borrow money against the equity in their home and make no repayments until the home is sold.
The number of reverse mortgages in Australia has increased from 16,584 in 2005 to 33,741 as at December 2007, with the value increasing from $848million to more than $2billion.
“These loans can free up money for seniors to spend on maintenance on their homes or other essentials,” Ms McHale said.
“However, with no repayments being made and interest accumulating over the life of the loan, the debt can balloon and even outstrip the value of the home.
“Borrowers may end up not having enough money to pay for alternative accommodation such as retirement villages or special care facilities.
“Some reverse mortgages contain wide-reaching default clauses, that allow the bank to request immediate payment of the entire loan balance if certain conditions aren’t met.”
The Minister said it was vital that people sought independent legal and financial advice before entering into these arrangements.
Consumer Protection has developed a publication entitled ‘Reverse Mortgages for Seniors’ which explains in simple language, with case study examples, what reverse mortgages are, how they work, the risks and who to speak to for help and advice.
The brochure is available through Consumer Protection’s website at http://www.docep.wa.gov.au or by telephoning 1300 30 40 54.
Minister's office - 9213 6900