New loan offer for cash-poor home owners

Anne Gibson

“Paper millionaires” with mortgage-free houses now have a new $300/month finance option to give them a more regular form of income as they age, says an NZX-listed bank.

New Zealand’s biggest reverse mortgage financier, Heartland Bank, yesterday announced it would provide a monthly advance option on these types of loans.

Only lump sums were previously available but now the reverse mortgages can be monthly.

The loans appeal often to older people with debt-free houses but low incomes, usually only superannuation, so they gradually pull the money from their house as they age.

Lisa Hatfield, Heartland’s senior retail manager, said the bank now had a $365 million reverse mortgage loan book, up by $28m in the past year and growing strongly.

We encourage all customers to talk to family. Lisa Hatfield, Heartland Bank

Heartland said the mortgages allowed people to borrow against the equity in their homes, releasing cash without having to sell their houses.

But it also said independent legal advice was mandatory before the loans could be granted.

“We encourage all customers to talk to family and we even highlight alternative options, in writing, so they can make an informed decision,” Hatfield said

The schemes allow seniors to leverage the value of their home and provide them with more cash-flow flexibility and financial freedom, she said.

Some retirement specialists said the loans appealed to people who were “paper millionaires” — asset-rich but cash-poor. But people must understand the decisions they were making and the implications of drawing on equity, specialists said.

The downside of reverse equity is that people get into debt at the wrong time of life.

Hatfield agreed that the loans were not suitable for everyone but said Ministry of Social Development data showed about 75 per cent of older New Zealanders owned mortgage-free properties.