07 Apr NZ Property – Is a Reverse Mortgage an Option?
Many retirees depend entirely on their NZ Superannuation for their income during retirement. As a result, money can be tight, and any unexpected expenses can leave a sizeable hole in the budget. That’s where a reverse mortgage may be an option. A reverse mortgage could free up some much-needed cash when times are tough, but it’s important you understand the pros and cons of this type of lending.
When money is tight
If you own your own home and you’re over 60 years of age, you may be able to borrow money against the value of your home to pay for those unexpected medical expenses, do some home renovations, or plan a family holiday.
A reverse mortgage turns bricks and mortar into dollars, allowing you to borrow funds against the equity in your home without having to sell. When your house is eventually sold, the lender gets its money back along with the accumulated interest charges.
You must be at least 60 years old before you can apply for a reverse mortgage and you can only borrow a percentage of your home’s value. Most importantly, your home must be mortgage-free.
The funds released in a reverse mortgage can be taken as a lump sum, drawn down as needed, or received in regular payments. You can use the money for anything you want: Emergency health care needs, property maintenance, a family holiday, or an income top-up.
Probably the biggest advantage to a reverse mortgage is that it comes with a lifetime occupancy guarantee, which gives you the right to live in your home for as long as you choose, and when your house is sold you or your estate won’t have to repay more than what your house sells for. So, you’re not leaving your children with any debt to repay.
We’ve outlined some of the advantages and disadvantages to this type of lending.
- You don’t need to make repayments during the life of the loan. Instead, the loan is repaid when the house is sold.
- A rise in house values and property prices could help offset interest charges when the house is sold.
- You have the right to occupancy for as long as you choose.
- The lifetime occupancy guarantee only applies to those named on the loan agreement.
- Interest rates are higher than traditional mortgage rates.
- Interest compounds as you’re not making any repayments, which can eat into your remaining equity.
- Upfront costs like legal fees can be steep.
- Ongoing expenses like insurance and rates must be paid to avoid being in default.
- The lender may not lend on some types of property.
Make an informed decision
If you need to free up a little cash for whatever reason, a reverse mortgage could be the answer. But, as with all financial decisions, it’s vital you understand what this means to you. Talk to a Mortgage Adviser from Max Loans today.
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This publication should not be deemed as financial advice. While all care has been taken in the preparation of this publication by the writer, Max Loans and the writer give no warranty as to the accuracy of this publication and whether the information contained within it is appropriate for your individual circumstances. No responsibility is taken by Max Loans or the writer for any errors or omissions in this publication. You should seek specific financial advice appropriate to your individual circumstances before acquiring or disposing a financial product.