15 Nov 2010

Couple warn of reverse-equity mortgage costs

3:03 pm on 15 November 2010

A retired couple in Tauranga say they feel cheated after trying to get out of a reverse-equity mortgage.

Under the scheme, homeowners can release money from their home under a mortgage-style agreement. No repayment is required until death, when money is taken from the estate.

The couple took out a reverse mortgage of $85,000 two years ago, at 10.4% compound interest, to cover renovations.

The lender, Bluestone, is based in Australia and offers reverse-equity mortgages on behalf of Westpac bank.

They said the loan has grown to $118,000 and they have been told it will cost $226,000 to break the deal, though they have not been told why it will cost so much.

"They said it was determined by a third party - the bank - and that Bluestone does not have access to the bank's formula, nor to the actual life curve that is applied."

Bluestone says all its customers receive independent legal advice before taking out a reverse-equity mortgage.

It says each customer also receives a phone call from Bluestone staff before entering the agreement, to ensure the customer understands the obligations involved.

Retirement Commission marketing and communications manager David Kneebone says he is surprised the break fees have not been disclosed, given it is a mathematical formula.