Releasing equity in your home
If you own a home, you may be able to borrow money if you've paid off enough of your mortgage. The loan may cost more than a normal home loan and the type of loan you get depends on your circumstances.
The names given to the loans vary from lender to lender, but they're generally called 'home equity release schemes'. They're often described as being for people who are 'asset rich and cash poor' — that is, they own their own home but don't have much income.
Types of home equity release schemes
There are 3 main types of home equity release schemes:
- home equity loans
- reverse mortgages, including reverse annuity mortgages
- home reversion schemes — sometimes called shared equity release schemes or home buy-back schemes.
You can only get 1 of these loans if you have equity in your home. Equity is how much of your home you own — the difference between what your home is worth and how much you owe on it, if anything.
Many people get legal and financial advice before getting money through a home equity release scheme.
Home equity loans
Home equity loans are the most common way to use the equity in your house to borrow money.
They can be taken out by anyone who owes less on their house than its market value. You'll have to leave at least 20% equity in your house after you've taken out the loan and make regular payments on the loan as you would with a normal mortgage.
Contact a bank or other mortgage lender to find out more.
You can get a reverse mortgage if you've paid off your mortgage or only a owe a small amount. There's also likely to be a minimum age, for example you have to be 60 or 65 before you apply.
With a reverse annuity mortgage, the money is paid to you as a fixed amount each week for your lifetime. There are currently no lenders in New Zealand offering this type of reverse mortgage.
Home reversion and home buy-back schemes
Home reversion or home buy-back schemes are common overseas, but there are currently no providers in NZ.
Under these schemes, you sell all or part of your home to someone else, but keep the right to stay in it as a tenant. Your home is usually bought by a bank or other financial service provider, and the money from the sale is yours to use as you like.
With some reversion schemes you can only sell part of your home to the financial provider. In this case they might agree to give you a share of the house's value if it increases. Such an arrangement is sometimes called a shared appreciation mortgage.
Depending on the agreement you make, with a home reversion or buy-back scheme, you:
- usually have the right to live in your home for:
- an agreed fixed term, or
- until your death
- may have to pay rent
- could have the right to buy your home back
- might not be able to move house without paying back the money
- might risk losing your home if the financial provider sells your home to someone else — you can get legal advice about how to protect yourself against this.
If you have a problem with your loan
In the first place contact your lender — they must provide a way to help you with a complaint. If they can't resolve the issue and your home equity release arrangement is with a bank, contact the Banking Ombudsman.
If you have an issue with a financial adviser, there are several ways you can solve the problem.
Other ways to get income from your home
There are other ways to generate income from your home.