That Home Loan Hub
Welcome to That Home Loan Hub, your ultimate guide to mastering the world of home loans and property. I'm Zebunisso Alimova, here to simplify the complexities of real estate and provide you with expert insights and the latest trends.
Whether you're a first-time homebuyer, an experienced investor, or simply curious about the property market, this podcast is for you. Join me each week as we unlock the secrets to property success and help you make informed decisions. Let's dive into the world of property together!
That Home Loan Hub
When Your House Is Your Only Asset: Understanding Home Equity Release
Looking to make the most of your retirement years but find yourself house-rich and cash-poor? Our latest deep dive into reverse mortgages might just offer the financial flexibility you've been searching for.
Reverse mortgages have earned a somewhat tarnished reputation over the years, but as we explore in this episode, they serve a valuable purpose for specific situations. For many Kiwi retirees who own their homes outright but didn't benefit from KiwiSaver during their working years, the pension alone simply doesn't stretch far enough. This financial product allows homeowners over 60 to access 15-20% of their property's value without making regular repayments.
We unpack several compelling scenarios where reverse mortgages make perfect sense—funding critical private healthcare to bypass lengthy public waiting lists, making essential home improvements for comfort and safety, or even creating precious memories with loved ones facing health challenges. One particularly moving example features a mother who used a reverse mortgage to travel the world with her daughter during her final months battling cancer.
The conversation takes an interesting turn when we discuss the intergenerational dynamics at play. Many retirees feel obligated to preserve their assets as inheritance, but we challenge this thinking. Is sacrificing your quality of life to leave a larger inheritance really what your children want? Many adult children actually prefer seeing their parents enjoy retirement rather than scrimping and saving for the next generation.
The most critical takeaway? Timing is everything. A reverse mortgage taken at 60 could triple in size by age 85 due to compound interest, potentially limiting future options like moving to a retirement village. Understanding when and how to use this financial tool makes all the difference between empowerment and regret.
Curious if a reverse mortgage might be right for you or your parents? Get in touch with us—we're here to listen to your unique situation and provide guidance without pressure. After all, retirement should be about living well, not just getting by.
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Hello and welcome back to that Home Loan Hub. I am joined by James Buchanan. Hello, james.
Speaker 2:Hello Morena. I love your greetings. Can I say them both at the same time?
Speaker 1:I don't know, you could try, but I think Morena means good morning. It does, so that's okay, it makes sense. It says hello, good morning, I love it. Ka pai, ka pai. All right, james. So we're going to talk about.
Speaker 2:Reverse mortgages or, as some people like to call them, home equity release products. All right, tell me more. Well, it's a really interesting topic. Reverse mortgages. They've got a pretty rough name and probably for quite a good reason. Historically, people might have been taken advantage of. However, based on my research in the topic and following some of the market leaders that are offering these products, there is a unique part of the market where they're really suitable, for example, if I can show you a case where it wouldn't be such a good idea to use a reverse mortgage. But firstly say what a reverse mortgage is, just in case people don't know. Basically, reverse mortgages are for retired people, usually over 60. They own their property freehold, so there's no mortgage on the property and because they might not have much cash flow you know today's retirees don't have KiwiSaver like our generation will have. They're living off the pension if they haven't put money aside, and the pension is really quite low. I think my parents said they buy their wine with it or something.
Speaker 1:And that's it.
Speaker 2:They buy a lot of wine. Yeah, they're alcoholics. Oh my goodness, I hope they're not listening To this episode, just kidding mum and dad.
Speaker 1:But you're right, like the pension alone Is not enough. And and if they didn't have A KiwiSaver? Because they wouldn't have KiwiSaver is quite new On the scene Then, yeah, what do they do?
Speaker 2:Well, everybody, no matter how hard you try I'm not gonna say everybody, but most people live beyond their means so you find yourself getting into retirement and you've probably earned really good salaries all your life, but all you've got is your house. You want to stay in your house but you can't do anything because the pension is so low. So what the reverse mortgage does is if you find yourself in that situation, then you can release some of the equity you have in your home let's say 25% of there's limitations. Now. So let's say you're 60.
Speaker 2:I think it's something like 15% or 20% of the value of your home that you could release and use that money for something. However, it's a bit different to your normal mortgage because you don't pay it off. You pay it off when you sell the house or when you pass away. So if you get a reverse mortgage and you're 60 and let's say at 85, you want to go into a retirement village, that reverse mortgage is going to have compounded over those 25 years and that $100,000 that you borrowed would be at least triple that or even more.
Speaker 1:That could be not a good idea for someone.
Speaker 2:Exactly. It's not a good idea if you foresee it being a long-term thing. But if you've got no other options, then you can see that it. Then it's worth looking into. But it's more. It's a backup. That's the way I would see it. If you don't need it, don't use it, and if you are getting one, you don't need to use the whole balance. You don't have to. It's like a normal, it's like a line of credit. You don't have to draw the whole thing down. You can just use what you need as you go.
Speaker 1:Can you pay it back at all? Yes, you can, you don't have to wait until the sale of the property right.
Speaker 2:That's right, you can pay it back earlier.
Speaker 1:Okay cool, because I guess a lot of people will be sitting there thinking okay, I'm 60, I need a hip surgery and I don't have private insurance anymore and the wait list with the government is yay long, you know. So it's going to take me two or three years to have that quality of life back. Meanwhile, my friends are having fun.
Speaker 1:They may be cycling across the country, having wine tours or I want to join the gardeners club or the flower people, whatever. You want to continue to have the quality of life. But if you've got pain, constant pain, and it can be fixed with surgery and if you go private it will be faster. I guess that's one of the cases where people would use it.
Speaker 2:Oh, absolutely, and that's a great example of you want to use it for something that's going to benefit your quantity of life, like you just said. And then you're still young enough at 60 I think, to you might even still be working, I don't know. But the key thing would be we would work with people to see how are you going to pay it back?
Speaker 2:if you took it so young because otherwise you're going to hinder yourself later on in life. Because if you want to make a decision to go to a retirement village, your capital when you sell your property or your funds when you sell your property, you're going to lose a big chunk. You might not have enough to get into the retirement village if that's the plan.
Speaker 1:The few that I've seen in the past we've helped with is people wanting to make the house a little bit warmer because they're not ready to go into retirement village. But they're already in their 80s and they just want to make the house a bit warmer so they don't want to get sick all the time, for instance during winter. So we've helped with those. I've also seen the one where a very sad one, a mother, you know her daughter was dying of cancer and she just wanted to make some memories with her. So they borrowed money and went on a cruise and trips across the world. You know just as memories to make with their daughter Okay.
Speaker 2:Yeah, no, that's awesome.
Speaker 2:So if you can use that for that kind of thing, and that's what we'd be really encouraging making sure it's been spent on priorities and later in life. If you are taking the reverse mortgage later in life, obviously you're not going to have the compounding impact, so it's not going to be such a big negative on your net worth. And the other thing to think of is it doesn't necessarily affect you as the borrower. It's a conversation to be had with the family.
Speaker 2:Probably you know children who may be expecting inheritance, but often I'm hearing is that you know most of us you know children who may be expecting inheritance, but often I'm hearing is that you know most of us? You know, in our generation we've actually got our own money, but our parents have this idea that they have to leave us. You know they have to scrimp and save and not, you know, have a nice lifestyle just so they can leave everything to the next generation. And that's not necessarily always the case. You know. I'm sure we'd love to see our families go and spend their money, our parents go and spend their money. They worked hard for it but there's definitely a mindset amongst that generation that they feel like they should be leaving.
Speaker 1:Yeah, A lot Something behind, but yeah, that's right. Right If the kids and parents see eye to eye and go no actually go enjoy your life. Mum and dad, you know, don't worry about me, I'll be fine, exactly.
Speaker 2:I'll work harder. Yeah, yeah, exactly exactly Awesome.
Speaker 1:James, thank you so much for putting your own spin onto this really important topic. I think because we do have a lot of older listeners as well that maybe have parents, you know, and they just want to help out their parents, but they don't know how this could be a potential way. So get in touch with us. We'd love to help. I'm sure James would love to help in that area, Absolutely, Please.
Speaker 2:Just you know we're not going to force anything upon you. We just want to hear your story and see if it's something suitable for you. I'd love to hear from anybody interested in the mart and that product. So sounds good, feel free to contact me awesome.
Speaker 1:Thank you so much, james. Have a good one, bye.
