Debunking some reverse equity mortgage myths
SBS Bank says reverse mortgages offer retirees financial freedom.
As the older generation moves towards retirement, there’s growing demand from many to be able to live the life they want and enjoy a lifestyle they deserve.
But they also face the challenge that when they stop working, money becomes tighter. They’re faced with superannuation payments that fail to keep up, declining interest rates on savings and investments along with rising living costs.
Many older Kiwis find themselves watching the dollars and cents because while they might be ‘asset rich’, they can be ‘cash poor’ with potentially hundreds of thousands of dollars tied up in the home they own.
SBS Bank has released SBS Unwind, an updated version of its reverse equity mortgage (REM), which is designed to offer those aged over 60 the opportunity to gain greater control of their finances and the freedom to enjoy the style of retirement they’ve been planning.
SBS Bank Group chief executive Shaun Drylie says more retirees are recognising the benefits and opportunities of unlocking the wealth in their home and a reverse equity mortgage was becoming an extremely viable option.
“Many retirees aren’t considering this type of loan because there’s uncertainty around how REMs work, so we’ve tried to make SBS Unwind as simple as possible to provide that flexibility and freedom,” Drylie says.
REM loans allow homeowners aged 60-plus to borrow money against the equity in their property. To be eligible, they need to own their home outright or have a standard home loan that is small enough to be paid off by drawing down the REM. The amount of money that can be accessed depends on the age of the youngest resident nominated to live in the property and the value of the home.
Customers don’t have to make regular repayments with a REM. The balance of the loan, which grows over time due to the interest compounding, does not need to be paid back until the property is sold or when the last of two residents nominated to live there moves out or passes away.
There were many myths about reverse equity mortgages, Drylie says, but those were misconceptions that could easily be cleared up by talking to the SBS team. Many people were also worried that they would drain all the equity from their house, but there were ways to help ensure this didn’t happen, Drylie says.
Another common myth was that taking out a REM meant if their circumstances changes, the homeowner was stuck in their home, Drylie says.
“A REM allows you to stay in your home – they don’t trap you there. Borrowers are able to repay their loans at any time if they so choose – so if things do change, the house could be sold and the loan repaid.”
Clarification around what REM borrowers could use their loan funds also helped dispel another myth, Drylie says.
“These loans aren’t restrictive, they can be used for whatever you wish – the whole point is to enable retirees to live their life the way they wanted to. That’s the whole point of working towards our retirement.
Drylie encourages homeowners to talk to the SBS Bank team and also obtain independent legal advice, which is a mandatory requirement.
“This is about enabling people to live more comfortably with less stress into retirement. But it’s also important people are comfortable with what they’re doing,” Drylie says.
For more information about SBS Unwind and whether it would be suitable for you, along with copies of Standard Contract Terms and Reverse Equity Mortgage Fees and Charges, visit sbsbank.co.nz or call 0800 SBS BANK (727 2265).