A reverse mortgage lets you borrow against the equity in your home without making regular repayments. Interest compounds and is added to the loan balance, which grows over time. This NZ reverse mortgage calculator shows how your loan balance and remaining equity change over the years, so you can see the long-term impact of compound interest on a reverse mortgage at any interest rate.
A reverse mortgage lets homeowners aged 60 or over borrow against the equity in their home without selling it or making regular repayments. The loan plus compound interest is repaid when the home is sold, the borrower moves into long-term care, or the borrower passes away. The main provider in New Zealand is Heartland Bank, which offers reverse mortgages under their Heartland Seniors Finance brand.
The maximum loan amount under a NZ reverse mortgage depends on your age. Younger borrowers can access less of their equity because the loan has longer to compound. Typical maximum LVR (loan-to-value ratios) range from around 15-20% at age 60 to 40-50% at age 80 and above. The loan is structured so that you retain a guaranteed minimum equity position (usually at least a 10-15% equity protection) even if property values fall.
Because no repayments are made, interest is added to the loan balance each month and future interest is then charged on the growing balance. This compounding effect means the loan can grow substantially over time. A $150,000 loan at 9.5% interest doubles in approximately 7.6 years, all else being equal. This is why this calculator is important: seeing the long-run trajectory helps homeowners and their families make an informed decision about whether, when, and how much to borrow via a reverse mortgage.
Reverse mortgages are regulated under the Credit Contracts and Consumer Finance Act 2003. For independent advice, speak with a registered financial adviser before proceeding.
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