HOME EQUITY RELEASE/REVERSE MORTGAGE CHECKLIST

1. LENDING LIMITS

   • Can your client borrow what they need today?
   • Can they borrow more over time if and when they need to?
   • Is further borrowing related to future increases in house value?



2. INTEREST RATES

   • Is the interest rate reasonable? Generally should be 1-1.5% above major banks standard variable rate for mortgages?
   • Is the rate controlled in any way? Eg fixed, capped variable, variable with pegged margin, variable with capped margin?
   • Is the rate flexible enough to reflect possible shrinking of margins in future?
   • Are there any break penalties for early repayment?-normally apply to fixed and possibly capped rates?



3. LOAN REPAYMENT GUARANTEE/NON-RECOURSE

   • Is the loan fully non-recourse? i.e. is the loan repayment limited to the net sale proceeds(after selling, legal costs etc) regardless of how long it may take to sell the property?
   • Is there a guarantee of occupancy for life, so long as the borrower wishes to remain in the home, without any fixed termination date and regardless of the levels of house value and loan amount?
   • Is the loan repayment guarantee supported or reassured in any way?



4. SELLING THE PROPERTY

   • Does the lender provide a reasonable amount of time to sell the property?
   • If it takes longer does normal interest apply or does lender charge default rate?



5. FEES

   • What are the total initial fees including valuation, establishment fee and lender's legal fees?
   • What is the total if the borrower decides not to proceed?
   • Are there any deferred fees that are charged on early repayment?
   • What are ongoing fees assuming no loan increases or other variations?
   • What are ongoing fees if there are loan increases or other variations?
   • When there are loan increases does the borrower get the advantage of an updated valuation at any stage? This helps ensure they do not over borrow and depending on house price inflation may allow them to borrow more than if a valuation was not done.



6. ACCESS TO FUNDS

   • Is there an ability to take a lump sum but also to be able to borrow more as needed?
   • Does the product design address any issues under the Social Security Act whereby periodic payments that are likely to be used for expenses normally paid out of income will be classified as income and potentially affect state benefits? Design features include making sure payments are not too frequent and are of a reasonable size.
   • Are there robust processes to ensure that where funds are drawn over time, the borrower's circumstances are reviewed from time to time and where appropriate they are referred back to their lawyer? Covers issues such as mental incapacity, elder abuse etc.



7. FINANCIAL ADVICE

   • Has the client been advised to seek advice from an independent financial adviser?
   • Have they received such advice and has this together with advice from yourself covered:-
     • a thorough needs analysis based on a comprehensive application form?
     • alternatives to home equity release?
     • a clear illustration of how any loan may grow over time and what equity may be left in the home?
     • any state benefits that may be available and the potential impact of a periodic payment product?
   • Is the client likely to receive further reviews over time in case their circumstances have changed?



8. LEGAL ADVICE

   • Are you acting solely for the borrower? This is a requirement of the NZ Law Society Guidelines for Reverse Mortgages?
   • Does the lender have robust processes to ensure that if a client wishes to borrow more that where appropriate they will be referred back to you for advice?



9. OTHER

   • Is the lender a member of SHERPA (Safe Home Equity Release Plans Association)?
   • Is your client being asked to take any other product in addition to the loan e.g. insurance or investments? If so, have you reviewed whether this product is appropriate?
   • Have you checked the transferability of the loan to a) another property or b) a retirement village unit? Is transferability without penalty guaranteed?
   • Are default provisions reasonable and is adequate time provided to remedy any default?
   • Are the requirements to maintain the property in good repair reasonable? Does the lender complete an initial inspection to identify any potential maintenance issues early?
   • How does the contract handle unforeseen changes in circumstances eg remarriage, returning from long term care etc?