What is a reverse mortgage?
Q & A session with Keira Billot, a General Manager at Heartland Bank
27 March 2023
If you're an older homeowner, there comes a stage in your life when you’ve paid off the bulk of your mortgage, but you’ve got less income coming in. The kids are all set up in their own lives, not expecting much inheritance, and you’d like to take some trips, but you haven’t got the disposable cash. You’re what’s known as, asset rich but cash poor.
With an ageing population and higher living costs, homeowners aged 60+ are increasingly taking up reverse mortgages which give them access to cash to help enjoy their retirement years thanks to the equity they have in their property.
What you’ll learn:
- What is a reverse mortgage?
- What sorts of homeowners does it apply to generally and in what kinds of scenarios?
- Do you remain the homeowner with the reverse mortgage?
- Is it only the family home that you can do a reverse mortgage with?
- How have reverse mortgages changed over the years?
- Are reverse mortgages likely to become more popular in New Zealand?
Trade Me Property set up a Q & A session with Keira Billot, a General Manager at Heartland Bank, Aotearoa New Zealand’s leading reverse mortgage provider.
Keira Billot, a General Manager at Heartland Bank
What is a reverse mortgage?
Keira: A reverse mortgage is a loan designed for homeowners aged 60 and over to access some of the equity in their home so that they can fund a more comfortable retirement. It’s similar to a regular home loan, where homeowners borrow money using their home as security, but instead there’s no requirement for regular repayments. The total loan amount, including the accumulated interest, is only repayable when the borrower moves permanently away from their home – usually when they sell their property, move into long-term care, or pass away.
Key facts about a reverse mortgage:
- The loan amount depends on factors like the age of the borrower and the value and location of the home.
- Interest is charged on the loan balance at a variable rate and is added to the loan monthly.
- Repayments can be made at any time, without penalty.
- Customers can access their available facility and draw down funds as required, supporting their needs over time.
What sorts of homeowners does it apply to generally and in what kinds of scenarios?
Keira: To be eligible, borrowers need to be over 60, own their own home outright, or have a standard mortgage that can be paid off by the reverse mortgage. The amount a borrower can access depends on their age and the value of the home.
Some interesting stats:
- The average age of a Heartland reverse mortgage customer is 77.
- On average, initial drawdowns are usually roughly around $60,000.
- The most common loan purposes are for home improvements, debt repayment, everyday living expenses, and car upgrades.
- Customers might also need to finance medical care.
Do you remain the homeowner with the reverse mortgage?
Keira: Unlike other equity release options, with a reverse mortgage the borrower remains the registered owner of the property and they can continue to stay in the home for as long as they want.
Is it only the family home that you can do a reverse mortgage with?
Keira: A reverse mortgage can also be taken against a secondary property, such as an investment property or holiday home. A secondary property loan provides the same benefits as a reverse mortgage on a borrower’s primary home.
How have reverse mortgages changed over the years?
Keira: First developed in 1961 in America, reverse mortgages became more regulated in the 1990s when the idea for older homeowners to tap into their equity and keep their homes became more popular.
In New Zealand, the core features of Heartland’s reverse mortgage, which it has provided to Kiwi seniors for nearly 20 years, have remained the same.
Heartland customers are protected by three guarantees:
- No regular repayments
- Lifetime occupancy
- No negative equity guarantee (which means borrowers can’t end up owing the lender more than their home is worth).
Also, customers must seek independent legal advice, they’re encouraged to seek independent financial advice and speak with their family. They can choose to protect a percentage of the equity in their home and we have a 30-day cooling off period.
Are reverse mortgages likely to become more popular in New Zealand?
Keira: Heartland has seen significant growth in its reverse mortgage portfolios (33.4% in the first half of the 2023 financial year compared to the first half of 2022) in recent years due to increased awareness and confidence in the product.
According to credit reporting bureau Centrix, nearly one in five Kiwi pensioners still have a mortgage as they go into retirement.
We believe there’s keen interest due to:
A strong desire for retirees to age in place, surrounded by friends, family and community.
- The growing age demographic and need for additional funds to support over 60 year olds.
- The increased costs of living putting pressure on retirees.
- An increased amount of indebtedness in retirement. Heartland has seen a 55% increase in the proportion of customers who use their reverse mortgage for debt consolidation in the last 15 years.
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