Traditionally, mortgages involve borrowing money to purchase a property, with repayments made over a set term. A reverse mortgage, flips this concept on its head. Designed for homeowners aged 65 and over, a reverse mortgage allows you to access the equity you've built up in your home without needing to make regular repayments.

This can be a valuable tool for retirees seeking to improve their financial security in retirement.

How does a reverse mortgage work?

With a reverse mortgage, you receive a loan from a lender based on a portion of your home's value. Unlike a standard mortgage, there are typically no monthly repayments required. Instead, the interest on the loan accrues and is added to the outstanding balance over time.

There are three main ways to access the funds from a reverse mortgage:

• Lump sum: Receive a one-off payment upfront.
• Term payments: Receive regular fixed payments over a set timeframe.
• Line of credit: Access funds as needed, similar to a credit card.

The loan becomes due when you permanently move out of the home, sell the property, or pass away. At that point, the sale proceeds from the home are used to repay the loan, including accrued interest. If the sale proceeds are not sufficient to cover the loan amount, any remaining balance is typically the responsibility of the estate.

What is the interest rate on a Reverse mortgage?

Interest rates on reverse mortgages are generally higher than those on standard mortgages. This is because you're essentially borrowing against the value of your home, and the lender is taking on the risk that the property value may decline.

How much interest do you pay on a reverse mortgage?

While you don't make regular repayments with a reverse mortgage, interest does still accrue on the outstanding loan balance monthly. This means the total amount you owe increases over time. This is important to factor into your decision making process that there is compounding interest.

Can I pay off a reverse mortgage early?

Yes, you can typically pay off a reverse mortgage early without any penalties. This can be a good option if you receive a large sum of money or want to reduce the total amount of interest owed.

Common uses of reverse mortgage?

Reverse mortgages can be used for various purposes, including:

• Supplementing retirement income
• Covering medical expenses
• Making home improvements
• Debt consolidation
• Helping adult children with financial needs

Which banks do reverse mortgages?

Only a couple of banks in New Zealand offer reverse mortgages. It's important to compare rates, terms, and features from different lenders before deciding. AndCo Mortgages, with their extensive experience in the property sector, can guide you through the process and connect you with reputable lenders offering reverse mortgages.

What is the difference between a reverse mortgage and a regular mortgage?

The key difference between a reverse mortgage and a regular mortgage lies in the repayment structure. With a regular mortgage, you make monthly payments that cover the principal and interest over a set term. A reverse mortgage allows you to access the equity in your home without regular repayments, with the loan becoming due when you move, or the property is sold.

Are reverse mortgages bad?

Reverse mortgages are not inherently bad, but they're not suitable for everyone. Here are some points to consider:

• Reduced equity: As you access funds through a reverse mortgage, the equity you own in your home decreases. This can impact the inheritance you leave behind.
• Debt burden: Interest accrues over time, potentially leading to a significant debt burden if you live a long life.
• Staying in your home: With a reverse mortgage, you must remain living in your home as your primary residence.
• Timing your access: Generally, delaying the access of funds through a reverse mortgage can help preserve your home equity for a longer period. This may be a better option for some retirees, particularly those who can manage with their current income and assets.

Lowe & Co's partnership with experienced mortgage advisors at AndCo Mortgages can help you understand how long your potential reverse mortgage payout might last and guide you through the decision-making process to determine the best timing for your individual circumstances.

We acknowledge that there can be downsides to starting a reverse mortgage too early. We suggest consulting with a financial advisor to determine the best timing for your situation.