Hello property investors,
I recently heard on the radio talking about REVERSE MORTGAGE[?]
Un fortunatly I only caught the tail end of the conversation, but they did say it was something that was going to take off.
Could someone PLEASE EXPLAIN.Hi Betsy,
RM is a product which I believe has been trialled in Aust before, by the banks, with mixed results.
Basically it is a situation where, should you have significant equity in your home, the bank will *give* you, say, 80% of your equity on the understanding that they will be paid out + interest when the house goes into probate (ie. the owners die).
Knowing the banks, they will probably minimise their risks to buggery, so I would expect 80% LVR maximum, probably more like 50-60% and they will promote it without highlighting the potential risks…the major one which I would see as being; should the house drop significantly in value (and I would expect the banks to keep a reasonably close eye on this), they may call up some or all of the money forwarded based on LVR changes. If you don’t have it…forclosure.
As you can appreciate, this product will most likely be targeted at retirees with significant equity in their properties.
On the plus side, it could provide a large cash bonus to retirees to “see out” their days with (esp in the light of crappy super returns, etc.)
Of course, it would diminish the estate left to heirs, etc.
Hope that helps…
Kindest Regards
Jason S
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Check out my E-Bay Auctions:
http://cgi6.ebay.com/ws/eBayISAPI.dll?ViewSellersOtherItems&userid=jayess70&include=0&since=-1&sort=3&rows=25Wow…the banks suck even more than I thought!! 15%-20% LVR!!!
There you go! ;o)
Kindest Regards
Jason S
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Check out my E-Bay Auctions:
http://cgi6.ebay.com/ws/eBayISAPI.dll?ViewSellersOtherItems&userid=jayess70&include=0&since=-1&sort=3&rows=25Quote:Wow…the banks suck even more than I thought!! 15%-20% LVR!!!There you go! ;o)
Jason, how much of your personal money would you lend to a person over 70 y.o. whose only income is the pension, and who has to pay food and housing costs out of this pension?
Terry
FinanceHello Terry,
Personal money? Probably not. BUT, I don’t have shareholders to appease[
]So, the question to be asked is, why this product at all – is it that the banks HAVE to offer it? No, I would think not – except I would expect it is being supported by the Fed Gov as a way of easing the Social Security burden – and we all know how much Uncle Gov likes to look after everyone [
]So, if the banks are in the business of making profits from lending, (amongst other businesses), what is the upside vs the downside? Well, at a MEASLY 15-20% LVR they have protected ABSOLUTELY their downside – let’s face it “Fire Sale” at 20% LVR is a lot easier to achieve than 80%LVR.
So why offer it in the first place? Perhaps so that the institutions can claim a balance sheet profit (ie. unrealised) to their shareholders of whatever nominal rate of interest they are expecting to recoup at the end…what is the interest rate, anyway? Is it standard variable or is there a “risk margin” attached?
All round, I would *seriously* wonder about taking out one of these loans, at 20% OR EVEN 80% for the credit risk alone.
What about fire/catastrophic failure risk? If the house burns down after 5-10 years, the insurance pays out, the bank gets paid its interest + principle and what then…the owner has to find new accomodation which they now have to afford with a LOT less in their pocket than they had before.
And, again, what happens in the case of the last surviving title holder becoming legally incompetent and requiring care in an instituation? Does the bank then have licence to have the property sold at “whatever” price they can get to divest the risk?
Overall, I think if this product becomes very well utilised in the market place, it will be great for opportunistic property investors for the above reasons – but I have to wonder about the banks…they have a chequered history as far as full disclosure of risk upfront, esp in new product lines.
And I have to say, if I was going to take a risk like this to borrow a measly 20%, I much rather take it for 60%! [
]Kindest Regards
Jason S
++++++++++++++++
Check out my E-Bay Auctions:
http://cgi6.ebay.com/ws/eBayISAPI.dll?ViewSellersOtherItems&userid=jayess70&include=0&since=-1&sort=3&rows=25
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