Relying on limited income from NZ Superannuation or other investments can make money tight, especially when unexpected expenses occur. A reverse mortgage is a way of unlocking some of the wealth that may be tied up in a home.
Typically, a lender such as a bank will pay the homeowner a proportion of the equity of the house and this will be registered as a loan against the property. There won’t be any repayments required, but interest on the loan will be accrued until the property is either sold, or the owner dies.
A reverse mortgage can be a good way for retired home owners to access some of their saved wealth, but it is important to consider all the implications:
- Borrowing against your home may leave you with too little equity in the future, affecting your financial capacity to move into supported accommodation
- The impact of compounding interest could result in a small loan becoming much larger, putting you under increased financial pressure
- Receiving a lump sum payment may prevent you from properly adjusting your lifestyle to your post-retirement reduced income, meaning you spend too much and leave yourself in financial difficulty when the lump sum runs out
- You could end up in a position where you are unable to leave an inheritance to your children or other family members
Make sure that you consult a financial advisor or lawyer before signing any documentation. It's also a good idea to discuss implications with your family.