How do you Access Cash from your Property Without Selling?

Tuesday 18 May 2021

Most of us would be aware that we can finance using our property as security by borrowing against that.

For those of us who may be at or past retirement age, one of the main concerns has always been we won’t be able to borrow money.

If you do own a property which has no mortgage, one option is to consider a reverse mortgage in that scenario.

What is a Reverse Mortgage?

A reverse mortgage is a loan secured over your home which has the following specific features:

1. You will not be required to make any payment of principal or interest until the earliest of the following:
   1. Your home is sold
   2. You have stopped living in your house
   3. On your death.
2. The interest rate is normally at the lender’s variable rate. Variables rates might be low now, but it is likely to increase over time.
3. Interest will compound monthly: as you are not making payments, then the interest will keep accruing and be compounded.
4. There is a limit on lending: as there are no repayments of principal nor interest until some time later, the portion of equity available for borrowing against is significantly less.

Given the increase in property values, there may be room to consider reverse mortgages. We would suggest that you talk to a mortgage broker prior to arranging one. There may be other financing options available, such as short term interest only loans.

If you are considering having a reverse mortgage, it is important to talk to your family. A reverse mortgage will reduce the amount available for your family’s inheritance. Having an interest-bearing loan from a family member could be an option if they do not wish you to take out a reverse mortgage.

If you do decide on having a reverse mortgage, then legal advice is critical.

Teresa Chan

This article is for general use only. Advice should be sought for specific circumstances. Please consult Teresa Chan at Teresa Chan Law Limited, Level 3, Westpac Building, 106 George Street, Dunedin 9016, ph. 477 1069, or email teresa@tchanlaw.co.nz