This article provides a basic overview of information provided on the Retirement Commission’s independent website
www.sorted.org.nz on equity release and the factors to consider when evaluating whether it is right for you.
What is equity release?
Equity release allows you to borrow money against your home, and receive the loan as a lump sum or regular income. When you die or move, your home is sold and the loan repaid.
What types of equity release are there?
There are many types of equity release, but the two most popular are line of credit and reverse equity mortgages.
With a line of credit, the homeowner borrows an amount against their property. The homeowner can either draw down money as they need it or receive it as a lump sum. Interest is charged on the loan, which accumulates until the homeowner dies or the property is sold. With this option you borrow only what you need, and you pay interest only on what you borrow.
With a reverse equity mortgage, the homeowner raises a loan on their property and uses it to buy an annuity, which gives them an annual allowance or income. Interest payments on the loan may be paid from the annuity or accumulated every year. The loan and the accumulated interest, if any, are repaid when the homeowner dies or sells the house.
Equity release is sometimes described as “eating your home” because you are getting the money from selling your house now rather than your estate getting it when you die.
When might equity release be right for me?
That depends on your financial situation and how comfortable you are with the concept of equity release.
You might consider equity release if you:
· own your own home and
· have a major expense (such as re-roofing your home) which you cannot pay for out of your normal income and / or
· are having difficulty paying for your day-to-day expenses out of your normal income
· are comfortable with the concept of “eating your home” and the fact that there may be little or no house asset to pass on when you die.
What do I need to consider when evaluating equity release?
Whichever equity release option you choose has significant implications, so it’s critical you do your homework and seek independent financial advice. When evaluating equity release consider:
· interest rates
· fees, including hidden fees
· whether your provider is fiscally sound and secure
· how flexible the product is (which one will best suit your needs?)
· limits (what’s the minimum and maximum amount you can borrow?)
· risk (might you lose your property?)
· implications for your will (do you want to distribute your wealth among your family when you die?)
What should I do next?
If you’re considering equity release, as a first step visit the Equity Release section on the Retirement Commission’s Sorted website (
www.sorted.org.nz). It has independent and impartial information about equity release, including the types of equity release available in New Zealand, the advantages and risks of each and checklists.
And for other information about managing your nest egg in retirement, visit Sorted’s 60plus section. 60plus has information and calculators to help you work out whether equity release, or another option, will best suit your needs in retirement.
If you’re seriously considering equity release, seek independent financial advice from a registered accountant or lawyer. They will talk you through the details and implications and help you choose an option that best suits your needs.
