Equity Release Mortgages
An Equity Release Mortgage (ERM) is not for everyone but, used properly, it can give significant freedom and quality of life to many people who own property and are on a limited income such as government superannuation.
ERMs allow you to borrow against the value of your property with no need to make repayments. The interest is added to the mortgage balance and the mortgage is repaid when you vacate the property.
A lifetime guarantee means you can stay in your home for the rest of your life, and a no negative equity guarantee prevents the mortgage ever being more than the value of your home. With a Equity Release Mortgage you always own your own home.
We can discuss whether or not an Equity Release Mortgage is right for you as part of our Retirement Plan service.
Features and Benefits
- The amount you can borrow depends on your age (at 67 you can borrow up to 22% of the property value, at 80 35%, and at 90+ 45%.)
- The mortgage has a no-negative equity guarantee so that the loan balance can never exceed the value of the property.
- Establishment fees range from $695 through to $895. There is an additional charge for a property valuation (usually about $500) that can be added to the loan. It is also compulsory to get independent legal advice, which will set you back at least $500. So total upfront costs are close to $2,000.
- Fixed and floating rates are available (we do not recommend a fixed rate for life because of the potential cost to you if you repay the loan early.)
Using Equity as part of your Retirement Plan
We don’t have annuities in New Zealand (life insurance based investments) so it is difficult to figure out how much you can spend every year so that your savings last for the remainder of your life. Given the uncertainty the natural inclination is to be conservative, which is ok as long as it doesn’t impact on your quality of life. Equity Release can help by acting as the insurance buffer for your retirement savings.
What do we mean? Knowing that you can access Equity from your home (and that property prices appreciate over the long-run) means that you can budget to spend your other investments over a shorter time frame. And if you live longer, then you can access your equity using an Equity Release Mortgage. Read More