There are two main equity release options options: reverse mortgages, where you can borrow against the equity in your home and instead of paying the interest, it compounds over time until the property is sold or you die; and home reversion, where you’re typically paid 2.5% of the value of your home (less fees) each year, in exchange for selling 3.5% of the value of your home.
Bagrie provides analysis of the options for clients through his business Equity Release NZ and says the decision isn’t always solely financial.
“If you want flexibility – say, a lump sum for a medical emergency or repairs – the debt product [a reverse mortgage] gives you that. If you want certainty and stability, the annuity style [home reversion] is better”.
However, purely based on numbers, Bagrie says: “Financially, a reverse equity mortgage tends to be more favourable out to about year eight. After that, compounding interest kicks in.”
He says whichever option you choose, there is always a cost. “There’s no free lunch here. Each of the products has got their pros and cons.”
Bagrie encourages people to investigate all their options – including family. “Is it better off for the family to take an equity stake in the home? You can get a little bit complicated within family circles when it comes to divvying up assets at the end, but those sorts of avenues should always be investigated.”
Listen to the full episode of The Prosperity Project for more.
The podcast is hosted by Nadine Higgins, an experienced broadcaster and a financial adviser at Enable Me.
You can follow the podcast at iHeartRadio, Apple Podcasts, Spotify or wherever you get your podcasts. New episodes are released every Monday.
