Warning issued on reverse mortgages
Home owners thinking about taking out reverse mortgages have been warned to take note of the fine print which, at worst, could see them evicted from their homes.
Reverse mortgages are increasingly popular with elderly home owners who can borrow against the equity of their properties and the principal and interest is not repaid until the home is sold.
Home reversion is when someone sells part or all of their home to a home reversion company at a discounted price and then receives regular payments.
But in a new report released the Australian Securities and Investments Commission (ASIC) has warned that these arrangements involve significant risks.
ASIC's executive director of consumer protection Greg Tanzer said that in the right circumstances an equity release product could provide income for older people or offer younger people a way of accessing home finance.
But the risks came when people signed up to inappropriate products.
"The obvious concern is that you might run out of equity in your house, particularly if you live longer than you had expected," he said.
This could result in elderly home owners being evicted, as had happened to some reverse mortgagees in the UK and the US.
People also needed to be aware that some equity release products included obligations to keep houses in good repair.
"Again that might trigger an ability for the mortgagor to evict you from the home or to require you to pay for expenses," he said.
The market for equity release products in Australia is small but growing rapidly, with the number of reverse mortgage providers growing from three to 15 in the 12 months to March 15.
ASIC says the risks are highlighted by the Melbourne-based Money For Living scheme, which recently went broke.
The Australian Consumers' Association backed up the warning, saying some schemes were highly complicated and targeted vulnerable consumers.
ASIC is urging people to read the fine print and to seek independent legal and financial advice before signing up to any equity release or reverse mortgage products.
The report, available at www.fido.gov.au/equityrelease, includes key questions people should ask before signing up to equity release products.
Source: © 2005 AAP
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