Many don't understand reverse mortgages

Many borrowers don’t understand how a reverse mortgage works and what it is and are being caught out by the complicated equity release loans.

There has been one incident which concerned an 80 year old woman who was given more than she applied for and passed on the extra cash to her children. The woman did not realise the equity she released from her home would attract compound interest until the amount was repaid.

A reverse mortgage allows the borrowers to access some of the equity in their home. The money is repaid to the mortgage lender when the home owner dies or sells the house. The product is increasingly popular with asset rich and income poor retirees.

One complaint to NICRI, the government information service for equity release products concerned an 80 year old woman who was given more than she applied for and passed on the extra cash to her children. The woman did not realise the equity she released from her home would attract compound interest until the amount was repaid.