What are your legal obligations under a reverse mortgage?

by Darren Moffatt on March 1, 2013

  • Sumo

In my experience dealing with retirees looking to release equity from their home, senior borrowers are often concerned about their legal obligations under a reverse mortgage contract. Some of the questions people ask are:

  • Can the bank sell up the home at anytime?
  • Will I leave a debt to the children?
  • What happens if the loan becomes worth more than the house?

The actual terms of the contract vary between lenders, and you will be required to get independent legal advice yourself, but there are some key obligations for home owners and borrowers that are common to all reverse mortgages in Australia:

  • You must keep the property insured at all times
  • You must pay your rates on time
  • You must keep the property in good repair, and not willfully damage or neglect it

If you abide by these conditions, you should meet your main obligations to the bank and therefore continue to enjoy the No Negative Equity Guarantee protections in the contract.

Yes, units or apartments are OK for a reverse mortgage. If you live in a strata complex, your owner’s corporation will have insurance over the whole building. Your body corporate can use a FREE tool like Housenet Strata Pages to store and share strata documents such as a the Certificate of Currency among lot owners.


Disclaimer: The above does not constitute legal advice and should not be relied upon for such. Seek your own legal advice when obtaining or applying for a reverse mortgage

{ 3 comments… read them below or add one }

johnyang August 26, 2013 at 6:18 pm

Yes it is a true fact but it is stated that these mortgages and loans played a major role in thundering the economy of a nation like U.s too. like once a person has taken loan to buy a house and after some time the value of property just fell down and the loan exceeds the actual value the person give the keys of the house to the bank. in cases like this bank has to suffer and moreover on large scale a country has to suffer.

Darren Moffatt November 7, 2013 at 11:50 am

Thanks Johny. I don’t agree reverse mortgage loans are a risk for seniors, or the economy. They are extremely heavily regulated in Australia and only comprise less than 1 per cent of all outstanding mortgage loans by the major banks. When done properly with the right lender and through a qualified reverse mortgage broker, retirees and senior borrowers who need to release equity to fund their retirement get a very good result in my experience.

malcolm PATTERSON February 8, 2014 at 2:21 pm

Does reverse mortgage get counted as income and government pension affected?

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