Bluestone Reverse Mortgage

Back in the mid-2000s hundreds of elderly Australians took out 'fixed for life' Reverse Mortgages at rates of 7-8%pa with Bluestone.

Over time, like a Reverse Mortgage does, the amounts owed have increased. Unlike other Reverse Mortgages, a person in this Bluestone product cannot voluntarily payback amounts owed without incurring a 'break fee'. In most instances the break fee is more than the principal + interest owed. Some people have coughed up the break fee as they wanted to get out of this hideous product, however most others are stuck and cannot afford to incur the break fee. The only way around the break fee is to die, or be declared ill and be forced into a nursing home. It is a despairing thought for those who have the mortgage and also their relatives.


If you are one of the many who have paid the unreasonable break fee or if you are thinking of terminating your reverse mortgage but can't due to the break fee, then I urge you to contact your local member or the Shadow Treasurer Chris Bowen so that the Royal Commission can look into the issue. There is still time!

Hopefully with enough pressure, Bluestone will refund the break fee and not force others to pay the break fee if they are considering terminating the product.

 

Is this the only product borrowers should be keeping away from?

How about their home loan or investment loans? Anything dodgy there?

Cheers,
FXD

 

As a non-conforming lender, I'd be staying away from all their products unless there's no alternative. Non-conforming lenders have a high risk of increasing rates due to the nature of their funding.

 

I am grateful for the ABC for bringing this out - something must be done about Bluestone! In this case, the couple owed 180k on their loan, but then they had a 150k break fee on top of that!

Reverse mortgages leaving the elderly high and dry

"AMY BAINBRIDGE: Margaret and Peter's son Tim passed away, and when Peter was 77 years old and developing dementia, they decided to move to a retirement village in 2014.

Then, they were presented with their contract, which had a clause showing they needed to pay a break fee the bank had calculated at $150,000, on top of the loan costs, leaving them with a $330,000 bill."

 

Whilst I think the break fee is super harsh..

..surely this was all in the contract they would have read and signed?

 

But that'd never be applied to me!!!!

 

Peter, regarding non conforming lenders, do you put Libery and a Pepper into that category. To the extent I use these lenders (which is rare), I always make a point of moving the loan to a mainstream lender once servicability allows, largely to avoid the risk of rate increases, which I think is more prevalent with the secondary lenders v big 4 banks.

 

Yes there is mention of a break fee in the contract, but not how they calculate it.

I have obtained break fees every year for the past few years in the hope that i can end my misery but it has only gone up every year despite the fact that i am old and one year closer to death every year. Every attempt i have made to get them to send me the calculation i have been rejected as they say they cannot disclose it. all they tell me is that interest rates have gone down. It is literally a black box calculation.

 

Reverse mortgages are only suitable for the financially illiterate - cause they don't realise how much they'll lose.

 

The calculation of the break fee must be like borrowing 8pc on say a 10 year fixed mortgage and then wanting to repay the loan after the interest had fallen to 3.9pc
There is a cost
Watching the video above it appears the CBA charge 2pc above the normal lending rate.
Still with the rise in the property prices perhaps they were still better off doing this way than selling the property and spending the proceeds (over the similar period)
Need someone to do the numbers to get the answer

 

Just back from holidays today...

Absolutely I put Pepper and Liberty in this category.

These types of lenders and reverse mortgages do have their place, but they're for when there's no alternative. Despite explaining this to clients often, most don't really appreciate it until some time after the loan is taken.