Positives and pitfalls of reverse mortgages

by Emma Turnbull, Solicitor, North Harbour Law

When many people reach retirement age, their pension and savings do not allow them sufficient funds to maintain a comfortable lifestyle in their own home. Reverse mortgages allow those aged 60 years and above to borrow a sum of money against the equity in their home.

Unlike ordinary mortgage lending, there are no repayment obligations during the term of a reverse mortgage loan. This means that reverse mortgage loans can increase significantly over time. If you have borrowed a significant sum at say 60-70 years, the projected future loan repayment figures at say 80 plus years, can be eye-watering. This is even more so when the property market is not in the high of its cycle. Before proceeding with a reverse mortgage, you should:

• Consider whether you may need or wish to move into a retirement village or a smaller property in future. While at age 65 you may wish to remain in your home, once you are in your 80s and beyond this may be practically more difficult. Your options will be severely restricted if you have significant reverse mortgage lending to repay on the sale of the property after 10 to 15 years of accumulating loan principal, interest and costs.