Guest post by Brian Coogan, Licensed Financial Adviser and Director at Infinance – Taupo
So you're near or retired, own your home, maybe an investment property, and looking to release some funds for any amount of activities or projects.
Reverse mortgages can allow you to draw down cash from the equity in your home, with some key features that make them flexible.
Key features
- No repayments to make. You can draw down funds and interest accrues on a floating rate that can be settled when the house is ultimately sold.
- It can be used for any purpose. Some key ones are helping children with deposits on homes, travel, renovations, vehicles, or a cash top-up.
- It can be paid back in part or in full, with interest charged on the outstanding balance only.
- It can be used in collaboration with family to look after you while also looking after inheritance assets.
- It can be used in conjunction with a power of attorney to manage spending.
- Limits are set on how much you can draw down to protect assets, with the allowable percentage increasing with age — i.e. your age less 40 gives you the maximum percentage of the property value you can draw down.
- Appreciation in property values can help offset interest costs, especially when funds are used for renovation works.
The costs
- Set-up fees are around $1,000.
- Initial conveyancing costs for registering a mortgage with a solicitor for first drawdown are around $2,500. This can be added to the initial drawdown.
- Interest rates are floating, a couple of percent above mortgage rates, currently around 7.5%. However, this is cheaper than a lot of vehicle finance, personal loans, and credit cards.
You will be encouraged to obtain independent legal advice, with measures in place to avoid coercion and to protect your interests.
Your broker will have access to options for you. For more detail on the above and to explore limits, go to infinance.co.nz/insights.
