Reverse mortgage or downsizing? Weighing up your options in NZ
Comparing a reverse mortgage with downsizing and other ways NZ retirees release money from their home, including costs, compounding interest and what is left for family.
Plenty of New Zealanders reach retirement with most of their wealth in their home. A reverse mortgage is one way to use it. Downsizing is another. This post sets them side by side, along with the other options lenders themselves list. It is general information, not advice. See the reverse mortgage guide for how the loans work.
Reverse mortgage: stay put, borrow against the home
You keep living in your home and owning it. There are no regular repayments. Interest is added to the loan each month and compounds, and the loan is repaid when the home is sold or the last borrower leaves or dies.
Might be worth a look if you want to stay in your community, the amount you need is modest, and you're comfortable leaving less equity for later. Watch out for the interest rate, which is often higher than a standard home loan and changes over time (check current rates), set-up fees and the effect of compounding over many years.
Downsizing: sell and buy something smaller
Selling and buying a cheaper home can release cash with no loan at all. The costs are different: real estate commission, legal fees, moving costs and the disruption of leaving a familiar place. You also need a suitable home to move to in your area.
Might be worth a look if the home is bigger than you need, upkeep is getting hard, or you'd rather keep your equity than borrow against it.
Other options worth comparing
Lenders themselves point to several alternatives:
- other loan products, such as a standard home loan top-up if your income can cover repayments
- council rates relief
- taking on a boarder
- moving to a smaller home and selling or renting your current one
- subdividing
- selling to, or borrowing from, family
Some lenders also offer loans for people moving into a retirement village before their house sells.
Side by side
| | Reverse mortgage | Downsizing | | --- | --- | --- | | Stay in your home | Yes | No | | Regular repayments | None required | None | | Ongoing interest | Yes, compounding | None | | Upfront costs | Lender fees, valuation, your lawyer | Agent commission, legal, moving | | Equity left for later | Falls over time | Kept, less what you spend |
Questions to settle before deciding
- How long do you expect to stay in the home?
- How much do you actually need, and when?
- How would less equity affect a later move into care?
- Have you talked it through with family?
Lenders commonly require you to get independent legal advice from your own lawyer before you sign a reverse mortgage.
If a reverse mortgage sounds worth exploring, Get in touch now for more information. This is general information, not advice. Online Home Loans is a referral service and may receive a commission for the introduction.
FAQ
Is a reverse mortgage better than downsizing?
Neither is better for everyone. A reverse mortgage lets you stay but costs interest that compounds. Downsizing has one-off costs but no ongoing interest.
Can I use a reverse mortgage and then downsize later?
Yes. If you sell, the reverse mortgage is repaid from the sale. Some lenders let you re-apply on your new home if it meets their criteria, with fees.
Does downsizing affect NZ Super?
NZ Super is generally not means tested. Other support such as supplementary benefits can be affected by changes to your assets or income, so check with Work and Income.
This page is general information only, not advice. Online Home Loans is a referral service. If you leave your details, we pass them to Heartland Bank, who will get in touch about a reverse mortgage. We may receive a commission for the introduction.