The rise of reverse equity mortgages

As New Zealanders live longer and look for ways in which to bolster their incomes, reverse equity mortgages are becoming an increasingly popular option.

Retirement isn’t what it used to be. New Zealanders are living longer, have more active lives, and we want to continue doing what we love: eating great food, travelling the country, treating the grandkids. And for this, we need money.

This is part of the reason behind the increasing uptake in reverse equity mortgages (REMs) in the past few years. Over the past decade, the Australian reverse equity mortgage market has almost doubled from $1.3 billion to $2.5 billion. In the year ending June 30, 2019, the New Zealand market grew by $106 million, after many years sitting about the $50 million annual growth mark.

Older homeowners are no longer content to sit back and watch the grass grow postretirement. They are more fit and active, and want to engage more fully with life.

SBS Bank general manager member experience Mark McLean says many New Zealanders relying on the safe and conservative investment option of bank deposits have found returns declining as interest rates have fallen. They are looking for ways to supplement their superannuation, and the likes of SBS’ Unwind reverse equity mortgage is an increasingly appealing option.

Unwind by SBS offers a tiered borrowing system that allows people close to, or in retirement, the option of unlocking the value of their homes, while retaining their ownership. Those aged 60 are able to borrow up to 15 per cent of their home’s value and by the age of 95 they can borrow up to 50 per cent of their home’s value.

The loan can be used for whatever you wish. An independent REM survey undertaken by Ace Insights in September 2019 revealed that 50 per cent of SBS borrowers use their REM for home improvements, and 41 per cent use it for additional day-to-day expenses. 29 per cent of these borrowers reported using the money for travel and holidays. It’s all up to you.

One of the most important components of the application process is ensuring the borrowers understand how reverse equity mortgages work. With regular mortgages, the loan reduces as you make payments. With a REM, the loan amount will increase over time as interest compounds and regular payments are not required to be made.

Those taking out a reverse equity mortgage need to understand the product and the implications both to themselves and family.

In the wake of Covid-19, the housing market may be volatile so a reverse equity mortgage is worth investigating.