Reverse Mortgages Offer Value For Homeowners With Low Retirement Income

Heartland Bank welcomes the research paper released this week by Motu, funded by Te Ara Ahunga Ora Retirement Commission, which explores whether New Zealand home equity release schemes provide value for money.

Heartland Bank CEO, Leanne Lazarus said, ”We are pleased that Te Ara Ahunga Ora Retirement Commission has invested in understanding more about reverse mortgages and the financial options available to Kiwi retirees.”

The report states: “Equity release products can be beneficial for people who have low retirement income and limited options to access liquid wealth but hold substantial equity in their owner-occupied houses.”

“Heartland Bank is proud to be able to provide a financial solution which can support the 25% of New Zealand households which fall into this category”, said Leanne.

As the leading provider of reverse mortgages in New Zealand, Heartland Bank has seen 20% growth in its Reverse Mortgage portfolio in the past financial year. This demonstrates the need by older homeowners for additional access to funds in their retirement years.

The report indicates that in the absence of suitable options to downsize, or for people whose preference is to remain in their home for the remainder of their life, home equity release products provide a means to supplement retirement income.

Older Kiwi are especially hit hard in the current economic environment. A reverse mortgage can make a significant difference to everyday living, especially when NZ Superannuation is the household’s only source of income. Many of Heartland Bank’s customers use their Reverse Mortgage to improve their homes as they age, consolidate debt, top up income, travel, upgrade their car or pay for medical expenses.

“We are committed to raising awareness and education about reverse mortgages as one of a suite of options to fund retirement, and to dispelling some of the common misconceptions about the product. We have a specialist team who take a considered approach to working with customers over a period of time to ensure a reverse mortgage is the right option for them.

“It is important to understand the difference between a reverse mortgage and standard residential mortgages – and other standard bank lending,” said Leanne.

With a Heartland Bank Reverse Mortgage, borrowers are not required to make any repayments until the last borrower leaves the property. Being a floating rate, customers can repay their loan in part or in full at any time, with no penalty. In addition, there are additional product features in place to protect customers, which are not common with standard mortgages. For example, homeowners have the benefit of lifetime occupancy and a “no negative equity” guarantee.

Heartland Bank also offers an equity protection option where customers can choose to protect a percentage of the eventual net sale proceeds of their home. Under this option, when the loan is repaid, the chosen percentage is guaranteed to be returned (up to 50%).

Motu’s research found that while interest rates for reverse mortgages are higher than traditional mortgage rates, reverse mortgages are more attractive than consumption-based lending, such as personal loans or credit cards, whose interest rates are typically twice as high.

Heartland Bank is proud to have received Consumer Trusted accreditation for its Reverse Mortgage product for seven years in a row. As a conservative and prudent lender, Heartland Bank encourages its customers to only borrow what they need and ensures its customers are aware of how a reverse mortgage works and receives independent legal advice so that they can make an informed decision. Heartland prepares customised loan illustrations to help customers understand how their loan will grow over time and the impact on their equity. Customers are encouraged to consider all other options first (such as downsizing) and to speak with their family before proceeding.

In the 12 months ended 30 June 2024, Heartland Bank’s average initial Reverse Mortgage loan amount at origination was $78,000, with an average initial loan to value ratio of 9.08%. The average loan period at repayment is only 7 years.

In the same period, the top four uses for a Reverse Mortgage by Heartland Bank’s new Reverse Mortgage customers were home improvements (59% of new customers), debt consolidation (38% of new customers), travel (30% of new customers) and to supplement income (29% of new customers). Customers often select more than one use for their Reverse Mortgage.

A range of content explaining the product is available on the Heartland Bank website, including easy to understand videos, FAQs and a downloadable insights guide.

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