Risks of Reverse Mortgages
Posted on April 17, 2006
Filed Under Home Mortgage, Mortgage Updates
Thinking about a reverse mortgage?
Before you sign that contract, make sure there aren’t any traps.
The Australian Consumers Association recently studied 19 lender contracts. It discovered default clauses that, if breached, could result in a call for the immediate repayment of the entire loan.
Property titles remain in the borrowers’ names and they are responsible for rates, repairs and maintenance. It is here where borrowers can find themselves in default, for example:
• REPAIRS not done after the lender has demanded them;
• RENOVATIONS made without the lender’s permission. “Renovations such as a wheelchair elevator or ramps may not be allowed because they may have a negative impact on the property’s value,” said the ACA;
• RATES, taxes not paid on time;
• PAPERWORK not maintained or done correctly, such as failing to give an annual statement declaring you still live in the home.
Once the borrower was in default, the lender could demand the immediate repayment of the loan and charge a penalty interest rate of 2 to 3 per cent more until it is repaid.
The Association also found that the contracts’ “no negative equity guarantee” (”where the lender covers any shortfall if the loan exceeds the proceeds from the sale of a home”) often gave virtually no protection to the borrower.
Source: News.com.au
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