If you want to sell, downsize, move closer to family, make urgent repairs, or stay in your home a little longer, but most of your money is tied up in the property, it can be hard to know what to do next.
You may have value in your home, but limited cashflow. You may not meet standard bank lending criteria. Or you may know a change is needed, but feel stuck because you cannot easily access the funds to make it happen.
That is where home equity release, including a reverse mortgage, may be worth understanding. It is not right for everyone, and it is not something to rush into. But in the right circumstances, it may help someone move forward.
What is a reverse mortgage?
In simple terms, a reverse mortgage is a loan secured against your home.
Unlike a standard home loan, regular repayments are usually not required. Instead, the interest is added to the loan balance over time. The loan is generally repaid later, often when the property is sold.
Because the interest is added to the loan, the balance can grow over time. This can reduce the equity left in the home, especially if the loan is held for many years.
In New Zealand, reverse mortgages are generally designed for older homeowners, usually aged 60 and over, who own their home outright or have only a small mortgage remaining. The amount available depends on factors such as age, property value, property location and lender criteria.
When might a reverse mortgage be useful?
HTL Group Mortgage Adviser Serina Nicholson says reverse mortgages should not be dismissed without understanding how they work. “They’re not terrible,” says Serina. “In some circumstances, they can be really helpful.”
A reverse mortgage may be worth exploring when someone has a clear purpose for the funds, but standard lending may not be available. This could include essential repairs, preparing a property for sale, making a home safer or more liveable, or creating breathing room after a major life event, such as the loss of a spouse.
For example, someone may be living in a home that needs work before it can be sold. New carpet, painting, roof repairs or basic maintenance may make the property more saleable, or help avoid sacrificing value at sale time. But if the person has limited income, they may not be able to access a standard loan to get the work done.
Serina says this is where doing nothing can sometimes become the more expensive option. “People do nothing when they don’t know what to do,” she says. “But doing nothing can be worse.”
The property may continue to deteriorate, the situation may become more stressful, and the person may still end up selling without having explored whether there was a better way to prepare.
When should people be cautious?
A reverse mortgage is not a long-term fix for every cashflow problem.
The biggest thing to understand is compounding interest. Because interest is added to the loan, the debt can grow over time. The longer the loan is held, the more equity it may use up. That matters if you want to preserve equity for future care, family, or your estate.
It may also not be the right fit if the money is for general spending with no clear plan, if better options are available, or if the property does not meet lender criteria.
Things like location, condition, value, ownership structure and saleability can all matter. In some cases, selling, downsizing, standard bank lending, a smaller loan, or family support may be more suitable.
Some New Zealand providers include a no negative equity guarantee, which means the borrower or estate will not be required to repay more than the net sale proceeds of the property, provided the loan terms and conditions are met. However, this does not mean there is no cost. It simply means the debt is limited in that specific way.
Why the conversation matters
For Serina, the starting point is not “Do you want a reverse mortgage?” The starting point is understanding the person’s situation properly.
What are you trying to do? How much do you need? Is this short-term or long-term? Are you hoping to sell, stay, downsize, repair the property, or simply buy some time? What other options have been explored? What happens if nothing changes?
That wider conversation matters because a reverse mortgage is only one possible option. Sometimes it may be useful. Sometimes it will not be the best fit.
It is also important to involve the right people. These decisions can affect family, future care, estate planning and long-term equity, so trusted family members, legal advice and personalised financial advice should all be considered before making a decision.
Talk it through before deciding
Reverse mortgages and home equity release are not for everyone. But if you or someone in your family feels stuck because the next step depends on accessing money tied up in the home, it may be worth having a conversation before assuming there are no options. Serina can help clients step back, understand the bigger picture, and work through what is possible in plain English.
If you are considering how to fund repairs, prepare a property for sale, downsize, or access equity later in life, Serina can help you talk through the options and understand what may or may not be suitable.
This article provides general information only and does not take into account your objectives, financial situation or needs. Whether a reverse mortgage or home equity release option is suitable will depend on your circumstances, goals, property, lender criteria and long-term plans. Please speak with an adviser for advice specific to your situation.
