Senior loans becoming more popular
Senior citizens are sitting on large untapped fortunes in the form of their homes and condominiums. Almost one third of seniors over the age of 55 own their homes and have no home loans, according to a new study by Vintage People.
These senior citizens might be able to really enjoy their fortunes if they were cash. That is why banks and other companies are now turning to this group with so-called senior loans.
With a senior loan, the bank or lending company gives the senior citizen a loan against their home. The homeowner pays no interest on the loan. The interest instead is added to the debt, in this case, the home itself.
However, the Swedish Enforcement Authority is warning about the shady lenders and practices on the market.
In its latest analysis, the Enforcement Authority says it is becoming more common for these loans to trap senior citizens. The senior citizens are offered loans, using their house as security, and then they are encouraged instead to invest the money in insurance on the financial markets. This can be risky if these investment drop in value because the capital could disappear while the debt still exists.
The CEO of the senior loan company Svensk Hypotekspension, Lennar Grabe, says his company does not act in this manner "Today there's a total confusion of the terms. Everything is called a senior loan, including risky investments in the market or loans that are interest free for ten years and then become regular home loans," he tells news agency TT.
Grabe says a senior loan is a life-long loan with debt-free guarantee. That means, he says, the debt, including the interest, can never be more that the value of the home. "It's the lender who takes on the risk, for example, if the price of the home falls drastically," he says.