Reverse mortgages

What is a reverse mortgage?

If you are retired (or soon to be) you may be concerned about having sufficient income to fund a comfortable retirement.

You are not alone. Rising living costs that are outstripping superannuation payments means that many of your fellow retired Kiwis face a potential shortfall in retirement savings.

There is a potential solution however and it is based on home equity. Many seniors have significant untapped wealth tied up in the value of their home. In the past, to access that value there was often no alternative but to downsize or sell.
The good news is that there is a type of mortgage - called a Reverse Mortgage - that allows you to unlock the equity tied up in your home, without having to sell it.

Over the past decade Reverse Mortgages have become a more popular financial product. More and more Kiwi seniors are using them to cover day to day expenses or do more in retirement, such as renovate their homes or help their families.  A Reverse Mortgage is a loan especially designed for the needs of seniors. It allows people aged 60 and above to convert part of the equity in their home into cash that can be used for a wide range of purposes.

Unlike a standard mortgage, you are not required to make regular repayments (although you are able to do so at any time). If no payments are made the loan balance will grow over time due to the interest compounding. The loan is repaid when you sell the property, move out, or when you pass away.

An important point to consider is that with a Reverse Mortgage you continue to enjoy full ownership of your home. You remain the registered owner of the property at all times. Just like a standard home loan, a mortgage will be registered on the property as security for the loan.

The amount of money you can access with a Reverse Mortgage is usually determined by two factors … your age and the value of your home.

Factors to consider

With a Reverse Mortgage you could access the equity from your home via a lump sum, regular advances or as a combination of both. Regular repayments are not required, but can be made partially or in full at any time.
Often, there are misconceptions about reverse mortgages.  We have compiled some factors which you may be pleasantly surprised to know when considering a reverse mortgage.

• Flexibility - You are able to take a loan as a lump sum, regular advances or as a combination. Regular payments are not required but are able to be made partially or in full at any time. 

• 100% ownership  - You remain the owner of your home for as long as you choose – enjoy your independence.

• No negative equity guarantee - The amount required to repay a loan will never exceed net sale proceeds of the property.

• Equity protection option - You can choose to protect a percentage of the eventual sale of your home. When you repay your loan, you are guaranteed to have this chosen percentage returned to you (up to 50%).

• You don’t need to own your home outright  - Whether you own your home outright, or have a standard mortgage that can be paid off by the reverse mortgage, this is an option. The amount you can access depends on your age and the value of your home.

• Pay now or pay later  - Unlike a standard mortgage, you don’t need to make regular repayments. Instead, interest is calculated on the balance outstanding and added monthly to your loan. Voluntary repayments can be made at any time, which reduces the balance and interest charged.

• Independent legal advice - In order to take out a Reverse Mortgage you must agree to independent legal advice from a solicitor of your choice, who will with work with you to explain and discuss your loan.

Thank you Heartland Bank for providing this information. If you require any more information about Reverse Mortgages, visit their website.


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