The dream of owning your own home is very much part of the kiwi identity, and it was previously an achievable goal. It’s no surprise then that the majority of New Zealanders over 65 own their own home. Part of this reality is that, for many people, the family home is their main asset and their wealth is tied up in it. A high proportion rely on Government Superannuation for their income and can run into financial worries when unexpected expenses arise.
An option for consideration for those who are asset rich but cash poor is a Reverse Mortgage (also known as a home equity release mortgage). A Reverse Mortgage is a loan that is secured by a mortgage over your home. It differs from a regular mortgage in that there are no mandatory repayments during the lifetime of the loan. Instead, the capital and interest owing builds up as a debt against the equity in your house. The loan ends on either the death of the borrower (or both borrowers in the case of a couple) or when the house over which the mortgage has been granted is vacated by the borrower moving into permanent care or sold. Reverse Mortgages also have a minimum age criteria: you must be at least 60 years old before you can apply for one.
Reverse Mortgages sound like a good option - and they can be. However, careful thought and robust discussion should be had before one makes the decision to take out such a loan. You can use the money for anything you want but it’s important to explore all options available to you if you find yourself needing money to cover medical bills, maintenance costs and those other unexpected costs that can pop up out of the blue. We recommend that you involve your family in the discussion, and that you consider the full obligations and consequences under the loan. You should make sure you understand how the interest rate is determined, any extra obligations you may have in relation to maintaining the property, and the impact a Reverse Mortgage can have on your estate (to list a few considerations). You should also consider the risk that the value of your property does not grow as quickly as expected, or even that the property value drops while the loan balance continues to grow.
Part of the Reverse Mortgage process requires that you receive legal advice before signing the loan documents. Our specialist Seniors Law Team has the experience required to guide you through this process from the outset: if you are considering a Reverse Mortgage we are here to help you discuss the advantages and disadvantages from the moment you contemplate it as an option. Give Phillipa Shaw at Harmans a call on 03 352 2293 and we can make a time to discuss your options.