If you need to free up a little cash as you head into retirement, a Reverse Mortgage could be the solution. This type of mortgage literally lets you mortgage your property so you can access your equity with no repayments required until you move out. For many retirees, a reverse mortgage offers financial security to cover those unexpected expenses, like home repairs or major surgery without having to sell the family home. Please continue reading to learn more.
As more and more New Zealanders reach retirement age, many will depend entirely on superannuation savings or Government pensions for their day to day cost of living. Not surprisingly, money is tight and many retirees struggle to pay for any unexpected expenses.
That’s where the “home equity release” or reverse mortgage has been gaining interest: while similar to a standard mortgage, this mortgage is designed specifically for retirees, letting you unlock the equity in your home without selling it.
The interest on the mortgage compounds over time and repayment is only made when the property owner moves out of the house, the house is sold or after the property owner passes away. The overall effect is that the equity in your home quickly erodes as the interest mounts up, but it does provide a measure of financial security when you need it most.
There are several conditions attached to this type of lending – the value of your property and how much equity you have, as well as an age limit, so it’s best to seek advice from your mortgage adviser before proceeding with this type of mortgage.
Advantages of Reverse Mortgage
- Frees up money to pay for unexpected expenses when you need it most. Let’s you choose the payment as a lump sum, regular income or in small amounts.
- You don’t have to pay the loan and interest back until your house is sold or you move out.
- If property prices increase, your equity continues to grow.
Disadvantages of Reverse Mortgage
- Reverse mortgages can be costly because the interest rate charged on a reverse mortgage is usually higher than a standard mortgage as are the setup fees you’re required to pay.
- Because you’re not paying off your loan, interest is added and it’s quite likely the amount you borrow could double within 10 years with the added interest. It’s a good idea to make repayments if you have surplus funds to keep the interest costs down.
- To qualify, you must live in the property and you can’t rent out your house.
It is very vital that you seek legal and financial advice before taking out a reverse mortgage. Talk to one of our advisers to find out if a reverse mortgage could work for you.