When considering equity release in New Zealand, you have two main options: reverse mortgages and home reversion. Understanding the key differences will help you make the right choice for your circumstances.
The Key Difference
The fundamental difference is simple:
- Reverse Mortgage: You borrow against your home. You retain full ownership, but a debt is created that grows over time.
- Home Reversion: You sell a share of your home. No debt is created, but you give up a portion of future house price growth.
| Feature | Reverse Mortgage | Home Reversion |
|---|---|---|
| Ownership | Keep 100% ownership | Sell a share (e.g., 30%) |
| Debt Created | Yes - compounds over time | No debt |
| Interest Charges | Yes (6-8% p.a. typically) | None |
| Cash Available | Generally more (15-65%) | Generally less (15-45%) |
| Monthly Payments | None required | None required |
| Inheritance Impact | Debt reduces estate value | Share of growth lost |
When Reverse Mortgage is Better
A reverse mortgage may be the better choice if:
- You want to retain full ownership of your home
- You need to access more cash upfront
- You plan to make voluntary repayments to control the balance
- You expect to live in the property for a shorter period
When Home Reversion is Better
Home reversion may be the better choice if:
- You want certainty about your costs (no compounding interest)
- You prefer not to have any debt
- You expect to stay in your home for many years
- You're comfortable selling a share of your property
Real Numbers Example
Scenario: $800,000 home, owner aged 70
Reverse Mortgage
- Access: ~$320,000 (40%)
- After 10 years at 7%: owe ~$630,000
- After 15 years at 7%: owe ~$885,000
Home Reversion
- Access: ~$160,000 (selling 40% share)
- No debt at any point
- Estate keeps 60% of future value
Making Your Decision
The right choice depends on your priorities:
- Need maximum cash? → Consider reverse mortgage
- Hate the idea of debt? → Consider home reversion
- Planning for long term? → Home reversion may cost less
- Want to retain full ownership? → Reverse mortgage
It’s worth using our comparison tool and speaking with a licensed financial adviser before making a decision.