The increasing cost of living is putting pressure on New Zealand pensioners. Pensioners who own their own homes are still struggling, as superannuation has not kept up with the rising costs of insurance, rates, electricity, and food.
Pensioners who have worked hard to pay off their mortgages, can find themselves scrimping on the necessities as the costs of owning a home chew up a large amount of their weekly income. Older homes require ongoing maintenance, repairs and upgrades, and council rates have risen sharply.
Home ownership no longer guarantees a comfortable retirement, and many New Zealand pensioners are asset-rich but cash-poor with their wealth tied up in their home.
Downsizing
An often first recommended option is downsizing your home to free up capital. In selling a larger family home to purchase something smaller, retirees can free up some capital. A smaller, more manageable home can reduce ongoing maintenance, rates, and insurance costs.
This solution isn’t for everyone. Leaving a family home can be very difficult, and the process of selling and purchasing a property can be strenuous.
Moving in with family
For those that are able to do so, moving in with family is another practical solution to reduce living and housing costs while staying connected to loved ones.
Reverse mortgage
Reverse mortgages allow retirees to access a portion of their homes equity without needing to sell it or move and can provide an immediate sense of financial relief.
Reverse mortgages do come with long-term implications that require careful consideration. The debt owed can increase significantly, particularly if the arrangement is in place for many years as interest accrues over time. This can reduce the equity remaining in the home substantially, leaving mortgagors with less options than before.
Reverse mortgages can also have an impact on estate planning, as they will usually need to be repaid when the homeowner dies or permanently leaves the property. This can cause a surprise to family members when their loved one enters residential care or passes away, particularly if a significant amount of interest accrued.
Lifetime Home – a new solution?
Lifetime Home is a new alternative to reverse mortgages developed by Lifetime Retirement Income.
Lifetime Home is a debt-free equity release model where homeowners over 70 years old can sell 35% of their interest in their home to Lifetime Home. In exchange for the 35% of equity, Lifetime Home pays you 25% of the initial value of your home over a 10-year period. The 25% is paid at 2.5% per year, in regular fortnightly income payments.
After 10 years, you retain 65% ownership of your home and Lifetime Home owns 35%. You can choose to extend the Agreement and sell more equity to Lifetime Home if you want, but you retain your right to stay in your home. When the house is sold, Lifetime will receive its 35% share.
Lifetime Home differs from a reverse mortgage in the sense that there is no debt or accruing interest, and you receive a fortnightly income to supplement your superannuation. Unlike a reverse mortgage where the debt grows at a compounding rate and can consume a significant amount of the homes value, Lifetime Home advertises predicable ownership for homeowners.
There are eligibility criteria for Lifetime Home. You must be over 70, the property must be your primary residence, and you must be registered on the title. Only standalone, residential dwellings are pre-qualified, meaning apartments and flats are not. Only free-hold titles, mortgage free properties, and adequately insured properties are pre-qualified. Some areas of New Zealand are not yet covered by the scheme.
The ‘sting’ of Lifetime Home is that you sell your equity at a 10% discount. This is taken by Lifetime Home at a fixed cost, for providing the funds with no interest. Other shortfalls are that it’s a long-term commitment, and that Lifetime Home has a 35% interest in your house but makes no contributions to property costs. The key advantage of Lifetime Home is the certainty it offers, as you know from the get-go how much equity you retain in your home.
Get In Touch with Godfreys Law Today
Before proceeding with any arrangement, make sure that you seek and understand legal advice. All aspects, conditions, alternatives, and options need to be considered; to find a solution that’s right for you. Talk to Beth and Teneille about the option that may be best suited for you.
Real People. Real Solutions.
