All reverse mortgages from reputable lenders come with a guarantee of no negative equity. This means that, should all go according to plan, the borrower will never be required to repay more than the value of the home that’s been mortgaged.

In addition to the no negative equity guarantee, many reverse mortgages allow the homeowner to protect a percentage of their equity so that it cannot be accessed to repay the loan. This guarantees that, should the property be sold to pay the debt after the homeowners have permanently moved out, there will be some funds remaining after the loan is discharged.

However, this guarantee comes with several important caveats.

As a condition of the mortgage contract, the property must be maintained to the standard set by the lending institution. This obligation includes repairs, landscaping, and regular upkeep such as painting and roofing.

Should this maintenance be neglected for any reason, the lender may require that repairs be carried out to protect their investment in the property. If the homeowner does not comply, the mortgage holder may consider the homeowner to have breached the contract, and the no negative equity guarantee may be forfeited. It’s also possible the homeowner could be evicted although that would be an extreme.

Other forms of default for a reverse mortgage include nonpayment of rates and carrying inadequate insurance on the property. In addition, the homeowner should notify the lending institution if additional residents move into the house or if there is any alteration to the property’s structure, such as the removal of a gardening shed or installation of a new bathroom. Failure to communicate under such circumstances can also forfeit the no negative equity guarantee.

Each lender has different terms and conditions. A solicitor’s advice is necessary to ensure compliance with all terms.

The good news is, many lenders prefer to be reasonable regarding conditions of default, in particular those lenders belonging to the members’ organization, Seniors Australian Equity Release Association of Lenders (SEQUAL). SEQUAL members are required to maintain a high standard of consumer protection, and many will only act on a default in cases of willful negligence or damage to the property.

In particular, SEQUAL members will generally honor the no negative equity guarantee in cases where the reason for the default was beyond the control of the homeowner, such as a hospitalization or natural disaster, or in cases of fraud. Otherwise, if a reverse mortgage is held by a SEQUAL member, the guarantee of no negative equity is generally unconditional