Reverse Mortgages vs Lifetime Income Home Loans: Which One Works for You?
For many Kiwis heading into retirement, the family home is their biggest asset. But what if most of your wealth is tied up in your house and you want extra money to enjoy life, cover rising costs, or help family?
That’s where home equity release solutions come in. Two popular options are:
Reverse Mortgages
Lifetime Income Home Loans
Both allow you to stay in your home while accessing some of its value but they work very differently. Understanding those differences is key to making the right choice. The rates and house insurance payments are the responsibility of the owner irrespective of which option you choose.
What is a Reverse Mortgage?
A reverse mortgage is a loan for homeowners aged 60+ that lets you access some of your home’s equity without selling or making regular repayments. The amount you borrow, plus interest, is repaid later usually when you sell your home, move into care, or pass away.
You stay in your home as long as you like, and you control how much equity you unlock. Many people use it to:
Top up retirement income
Pay for home improvements or medical costs
Cover unexpected expenses
Why People Like Reverse Mortgages
Stay in your home: No need to downsize to free up cash.
Flexible access: Choose a lump sum, regular drawdowns, or both.
No repayments required: Interest compounds, so you don’t have to budget for extra payments.
Government protection: NZ law guarantees you’ll never owe more than the home’s sale price.
Things to Watch Out For
Compounding interest: Because you’re not repaying any of the debt, interest could build up quickly and reduces the equity in your home. If your home has a lower value to begin equity could be exhausted faster.
Impact on inheritance: More borrowing = less equity for family or surviving spouse/ partner when the property is sold.
Future flexibility: Using capital from compounding interest may limit homeowners choices to downsize your home at a later time.
Costs: Setup fees and higher borrowing interest rates can be more compared to a standard home loan/mortgages
What is a Lifetime Income Home Loan?
The Lifetime Home approach isn’t a loan it’s a partial sale of your home’s future value. Here’s how it works:
You agree to sell a set share of your home (usually around 35%) to Lifetime Income.
That share is sold gradually over 10 years.
In return, you receive a regular income stream, usually monthly, for 10 years.
This option turns part of your home into a predictable income source, which can make retirement budgeting much easier.
Why People Like Lifetime Home
Predictable payments: Guaranteed regular income for 10 years.
Certainty about cost: You know upfront exactly how much equity you’re giving up.
Stay in your home: Just like a reverse mortgage.
No interest charges: You’re not borrowing, so there’s no compounding debt.
Things to Watch Out For
Reduced ownership: You give up a 3.5% interest annually of the future property value.
No lump sum: This may not suit if you need big money upfront (e.g., renovations or medical costs). However, you can extend the income payments for a further 5 years. Your income is not inflation adjusted you get the same set amount each fortnight.
10-year initial payment: If your situation changes the home equity is reduced by the number of years payments have been received, if the property was sold.
Impact on estate: Similar to reverse mortgage, while there may be less equity value for beneficiaries, clients benefit from equity gains to their property.
Quick Comparison
| Feature | Reverse Mortgage | Lifetime Income Home Loan |
|---|---|---|
| How it works | Loan against home equity; interest compounds | Sell a fixed share of your home for regular income |
| Ownership | You keep 100% | You keep majority, but give up agreed share |
| Payments to you | Lump sum, regular drawdowns, or both | Fixed regular income over 10 years |
| Interest | Yes, compounds over time | None – equity sold instead |
| Impact on estate | Loan balance grows over time | Estate reduced by agreed percentage |
| Flexibility | High – multiple options | Lower – structured arrangement |
Which One Is Better?
It depends on what matters most to you:
Want flexibility and the option of a lump sum?
Reverse mortgage may suit you.Want predictable income and certainty about how much you’re giving up?
Lifetime Home might be the better choice.
Ask yourself:
How important is leaving an inheritance?
Do I need a large amount now, or steady income over time?
Am I comfortable with my estate being smaller?
Talk to an adviser
Both options can improve your retirement lifestyle but the best choice depends on your goals, budget, and family situation. Book a complimentary meeting with Adam or Bruce to explore which approach works best for you. Book now or email us at advice@compoundwealth.co.nz.