Lifetime Loans that appeal to older people can be dangerous and should be avoided for fear of huge financial risk, a Fine Gael Senator has said.
Regina Doherty, Leader of Seanad Eireann, expressed concern about Lifetime Loans, an equity release product which is being offered to Irish customers again after the practice stopped at the time of the financial crisis.
Senator Doherty said, “Lifetime loans are offered to people over 60 who can borrow against the value of their home, and the borrower does not make regular mortgage repayments.
“Instead interest is compounded to the loan amount on a monthly basis and becomes repayable in circumstances such as death, permanent vacation or sale of the property.
“This week we heard worrying reports on RTE’s Liveline of older people taking out these loans with massive amounts of compound interest being accrued, leaving the person or their family member liable for repayments that were double or more of what the original value of the loan was.
“One woman told how her uncle borrowed €100,000 in 2004 and currently owes the bank €261,000. She claimed they are now having complications while trying to apply for the Fair Deal Scheme.
“In some cases, the children or beneficiary of the borrower who had passed away did not know the loan had been taken out and subsequently discovered they now had to pay back a loan worth multiples of what the original loan was worth.
“On the face of it, this kind of lending practice is outrageous and should send a major warning to older people thinking about accessing a compound interest loan such as this one.
“The Competition and Consumer Protection Commission state that if a borrower is considering an equity release scheme, they should get independent legal and financial advice first and consider all of the other alternatives.
“I don’t think this goes far enough in protecting the public and I have written to the Governor of the Central Bank seeking support for mandating loan providers to have these loans reviewed independently.
“Those thinking about accessing such loans should listen to the experience of those who have gone for them in the past and proceed with caution” Senator Doherty concluded.