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Just this week, the team from HealthCarePlus attended some of the Retirement Income Workshops. Not only were they very informative and well received but there was also a lot of discussion around their new solution Lifetime Home. It's fair to say that there was some confusion with it and the reverse mortgage products that some of The Bank's offer. So we thought it was a good idea to publish Vanessa Glennie's article on just that point: Lifetime Home is not a reverse mortgage. Here’s why
Or you can read article published in full below and tell us what you think in the comments section.
Lifetime Home is not a reverse mortgage. Here’s why.
If you ask people what they know about home equity release, many (if not most) would probably mention reverse mortgages. That makes sense, since for a long time they were the only equity release option available to Kiwis. Until we launched Lifetime Home last year.
Equity release doesn’t always mean a loan
Equity release actually refers to any financial arrangement that allows homeowners, typically seniors, to access the capital tied up in their property without having to sell up completely and move.
A reverse mortgage is one option, where the homeowner takes out a loan against their property, with repayment of the initial amount plus accrued interest typically deferred until the homeowner moves out or passes away.
The other option is the debt-free model, commonly known as home reversion, which involves the homeowner selling a portion of their property in exchange for either a lump sum or instalments. This is the basis for Lifetime Home, which specialises in providing retirees aged 70 or older with a regular income to help meet day-to-day expenses.
The Lifetime Home factor
Understandably, we often get asked what makes Lifetime Home different from a reverse mortgage. So, we’ve pulled the key comparisons together below:
1. Will it add to my debt obligations?
Lifetime Home: No. Lifetime Home is a debt-free equity release model. You sell a slice of your home to Lifetime in exchange for a regular income paid out fortnightly over ten years. The income you receive is based on the equity you sell, not borrowed funds.
Reverse mortgage: Yes. You take out a loan against your home that accrues interest. You do not have to make any repayments until you move permanently from your home - the interest will be added monthly to your loan balance.
2. Can I receive a lump sum?
Lifetime Home: Lifetime Home is designed to provide a regular income to support your day-to-day living in retirement. However, you can take one year’s worth of income payments as a one-off lump sum if needed.
Reverse mortgage: Yes.
3. Can I know for sure how much equity I’ll still have in my home when I (or my estate) sells it?
Lifetime Home: Yes. After ten years, as per the Lifetime Home Agreement, you’ll own 65% of your home and Lifetime will have a 35% share.
Reverse mortgage: No. Interest will continue to accrue on your mortgage at the provider’s reverse mortgage rate. This rate is floating, meaning it will move when market conditions change. Most providers guarantee that you will never enter negative equity (i.e. owe more than the property eventually sells for). It might be possible to set a minimum level of equity retained, however the amount paid to you could be significantly less.
4. Can I keep living my house?
Lifetime Home: Yes. After the Lifetime Home 10-year payment period ends you can remain in your home for as long as you wish.
Reverse mortgage: Yes. You continue to own and live in your home for as long as you choose.
5. Do I have to be a certain age?
Lifetime Home: You (and your partner, if you have one) must be over 70 to be eligible for Lifetime Home.
Reverse mortgage: It depends on the provider, but most require you to be over 60.
6. Do I have to be mortgage-free?
Lifetime Home: Yes. You must own your home outright to be eligible for Lifetime Home.
Reverse mortgage: Typically, yes. However, some providers might use discretion for a small existing mortgage.
7. Can I use it for an investment property or holiday home?
Lifetime Home: No. Lifetime Home is only available for your primary residence.
Reverse mortgage: Some providers offer Secondary Property Loans, which is a reverse mortgage taken against an investment property or holiday home.
8. Can I transfer the agreement to a new home if I sell and move?
Lifetime Home: No. If you sell your house Lifetime Home is paid for its interest on sale. You can apply for another agreement for your new home, but it will be subject to eligibility criteria.
Reverse mortgage: No. If you move to another house, you must repay your current reverse mortgage. You can re-apply on your new home, subject to eligibility criteria.
9. Who is responsible for housing-related costs (e.g. rates, insurance)
Lifetime Home: The homeowner
Reverse mortgage: The homeowner
If you’re interested in learning about Lifetime Home and whether it could offer you a more comfortable retirement, simply click here to find out more.
This article is for information purposes only and should not be considered financial advice. Homeowners interested in equity release should seek professional advice on whether Lifetime Home or a reverse mortgage is more appropriate for their individual circumstances.
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They know that people spending in retirement require significantly different strategies to those who are saving for retirement. They manage retirees money a little differently to people who are saving for retirement. The reason for that is they have to make sure retirees savings last.
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