Cash-poor, house-rich: The retirement dilemma driving reverse mortgages
Tuesday, 23 June 2026
A couple in their 70s turned to a reverse mortgage after a cashflow crisis and rejection by their bank of 40 years left them fearing they would have to sell their home.
Reverse mortgages allow homeowners to release cash by borrowing against their property equity, but they carry high interest rates.
Data from Heartland Bank shows the average age of a reverse mortgage recipient is 73, with an average initial loan of $82,000 lasting for six years.
Age advocacy group Grey Power warns that some seniors use the loans out of desperation to cover regular bills and maintenance, advising those considering one to seek prior legal and financial advice.
Jill and her husband, both in their 70s, recently found themselves in a Kiwi retirement nightmare – a cashflow crisis.
Short of about $60,000 to “enjoy our life”, the problem was made worse because some of their investments overseas could not be cashed up to cover the deficit – except at a huge loss due to the war in the Middle East.
The couple wanted to do some minor things to their house and visit family overseas.
Their bank of 40 years did not want to loan them the money.
Jill, who did not want her last name used, says they started panicking - and thought the only solution was to sell their house.
“It really was a very nasty, stressful, literally sick feeling in your stomach,” she says.
“We live in Wellington and the market’s not good right now. And if we were going to sell, we’d have to find some money to fix a few things anyway.”
So they turned to a reverse mortgage – and the money went in last week.
“It's not a magic wand, we're aware of how quickly the interest grows,” says Jill.
“Obviously we would love to be in a situation not to take it. But it has given us some time to stay in the house and be able to go overseas to see our family.”
How do reverse mortgages work?
With more people living longer, retirement savings are a big issue. National has announced a new policy that would make KiwiSaver contributions compulsory for every worker from July 2028.
A reverse mortgage is a way for homeowners to borrow money against their property but keep living in it and have some cash to spend.
According to Heartland Bank, the largest provider of reverse mortgages in New Zealand, the average age of someone getting a reverse mortgage is 73. On average, the initial loan is $82,000, for six years.
Nearly half (48%) of reverse mortgages are in Auckland, with the top two reasons for getting one being home improvements and to service existing debt.
One of the big issues with reverse mortgages is the high interest rates (usually around 10%) which compound each year.
On a standard loan, you make monthly payments to prevent the debt from growing. But on a reverse mortgage, there are no compulsory repayments, which can cause unpaid interest to stack on top of itself.
For example, if your reverse mortgage is $100,000 at a 10% interest rate, your interest for the year will be $10,000.
So, if you make no voluntary repayments, your reverse mortgage will become $110,000.
And the next year you will be charged 10% interest on this new total, which means your interest will be $11,000 – making your reverse mortgage $121,000.
The entire loan balance is repaid only when the owner sells the house or dies.
In Jill’s case, she and her husband get some cash now. And they can pay the loan and the interest back should they decide to sell the house later – or if their investment bounces back.
Why are they controversial?
In a social media post, I asked: “Reverse mortgages – are they good, are they bad?”
The responses were very mixed.
“My parents took on a reverse mortgage of $50k to do some minor renovations to their home… It’s now at $200k,” one person told me.
“It’s a good option if you expect you or your parents to be living in the house for only a few more years,” said another.
David Marshall is the acting national president of Grey Power, an advocacy organisation for people aged 50 and over.
Marshall says it is not uncommon for older people to be “trapped in larger homes they cannot manage and start closing off rooms to conserve heat and manage their escalating power bills”.
As a result, some turn to reverse mortgages to keep up with rates, bills or repairs to the home that are not covered by their superannuation.
Marshall says they can be used as a way for seniors to remain in their home and release some cash for maintenance, escalating rates and cost of living increases, but should be used with extreme caution.
“We would encourage our members to seek financial or legal advice prior to taking up a reverse mortgage so they know all the issues beforehand.”
How do you know if it’s right for you?
Bruce Patten, the chief executive of New Zealand Financial Services Group (NZFSG), says there are three important things you should do as you think about getting a reverse mortgage.
(NZFSG is a financial services provider which offers more than 1000 financial advisers a range of support services.)
1. Set a clear timeline
Decide how many years you want to stay in your home. Patten recommends having a five-year plan, for example. Get a forecast for the total amount you would owe when you sell the house, then decide if this is manageable or not.
“You don’t want to be getting a big surprise in five years’ time and not have enough to maybe move to a retirement village or be able to downsize,” he says.
2. Consult your family
Patten says keeping families in the dark can lead to shock later on. And having the conversation might mean you could avoid a reverse mortgage altogether.
“Sometimes people can be a bit embarrassed because they’ve not been able to keep up with their credit card debt or their car has had issues and they can’t afford to fix it, and they try to find a way to borrow the money from the bank without letting their family know,” he says.
“The family has found out down the track and been shocked by this large mortgage and they say, ‘Look, if you’d spoken to us about it, we may have been able to help you out.’”
3. Talk to a lawyer
Lastly, getting good independent legal advice is crucial.
“Most of the reverse mortgage companies are going to make you do that anyway, but get it from someone that you trust,” says Patten. “The lawyer will help you understand, ‘Can I pay it off early? What happens if something changes?’”
This piece of editorial is part of the Paddy Gower Does Stuff property series brought to you by Tower. Stay tuned for other episodes and check out the Paddy Gower Does Stuff health series, releasing each week on Stuff.