Reverse Mortgage

Reporter: Natalie Bonjolo

For Caroline Vardy selling her home could turn out to be the most costly move she's ever made.

It's taken a life time, to own her own place, a modest home here on Queensland's Sunshine Coast. Now the Perth Grandmother will have to hand over, almost half to the bank.

Like many retirees, Caroline is considered asset rich but cash poor. So when she stumbled across an ad for Reverse Mortgages it sounded like a good solution.

Reverse mortages are loans only offered to seniors over sixty. It basically works like this, your home is full of equity so the bank lends you money based on the value of your property. You don't pay back the capital, or the interest, it comes off the value of your home.

The mortgage was set up by a broker who Caroline says encouraged her to borrow more than she needed. $30 000 up front, then $400 a month for the next nine years, a total loan of $73 500. The loan was approved with "Over Fifty " group at a fixed rate of 9.9%.

She was so worried about getting into debt, she made notes to ask the broker. If she could break the loan after five years.

She claims both the broker and a solictor said it would be okay. "I only wanted it for five years that was my plan i would never had taken it out if i couldnt do that"

It was only later, when she put her property on the market to move back, to Perth, she discovered her loan was for life. "When it said on the contract that the loan was for life, i thought it was for the life of the loan, but it turns out it's my life time, and they've estimated that im going to live for another twenty years, so I have to pay interest for another 20 years on this loan whether I've got the house or not"

She's now sold her house, just four years after taking out the mortgage. To get out of the original $70 000 dollar loan, will cost a $110 000 break cost making the total repaynment a whopping $182 000.

Banking and finance consumer advocate Denise Brailey believes many who take out a reverse mortgage dont fully understand what they're getting into. "It all sounds very inviting you can get a trip overseas a new car pay off a few bills, you can even use it for a little extra cash each week as people do in addition too the pension however you are eating the house"

"It's only in the past 7 or 8 years that reverse mortgages, seniors have become comfortable with" John Thomas is Chairman of Sequal the peak body who represent lenders who sell reverse mortgages.

"Depending on your age your provider will lend you a percentage of the value of the prioperty, very mioest percentage at 60 it's 15% of the value, they go up to 40% at the age of 90"

Australian seniors currently have 50 000 reverse mortgages, worth 3 billion dollars. the loans can be taken out for any length of time but in recent years lenders have stopped offering "fixed rate for life" the same type of loan caroline signed up for.

"Over Fifty Group", who are now Centuria Capital they tell us the loan was a valid contract, and it should have been made clear to Caroline by her financial advisors, it was fixed for life. Now they must cancel this long term funding, and will be charged early repayment costs by it's wholesale funder. this is passed onto the customer. but, the Group say they are working with Mrs Vardy to arrive at a better solution, with her wellbeing their primary concern.

Back in Perth, Caroline will now have to live with her daughter, once she pays out the reverse mortgage, she won't have enough left to buy her own home.

At sixty four it's a hefty price to pay for signing up for a mortgage which turned out to be the biggest mistake of her life.


Further Details

Denise Brailey - Banking & Finance Consumers Support Association-