A reverse mortgage is a loan against your home that you do not repay while you live there. The interest is added to the loan, and the whole amount is repaid when the home is sold, usually after you die or move into care. It lets you spend some of your home's value without moving. The cost is compounding: at an interest rate of 10.5%, which the Retirement Commission used in its 2024 research, a $100,000 loan grows to about $271,000 after 10 years and $447,000 after 15. The Commission's view is that these products are complex and relatively costly, can suit some people, and need a good understanding and advice before you commit. Our calculator does not model them. Rules checked 12 November 2026.
How a reverse mortgage works
You borrow against the equity in your home, either as a lump sum, as regular amounts, or both. You keep owning and living in the home. You make no regular repayments. Interest is charged on the loan and added to it, so each year you pay interest on the interest as well. When the last borrower dies or moves out permanently, the home is sold and the loan, with all its interest, is repaid from the proceeds. What is left goes to you or your estate.
The Retirement Commission's policy brief on home equity release (2024) sets out the main features of the New Zealand market:
- You can access these products from age 60. The earlier you start, the longer the interest compounds.
- Providers generally limit regular drawdowns to a 10 year period.
- The home must be sold when the owner, or a surviving nominated partner, dies or moves out. That makes them generally unsuitable for multigenerational households, where family members also live in the home.
- In New Zealand, the main reasons people take one are home improvements and paying off debt, rather than topping up income.
Compounding: why the loan grows so fast
With no repayments, a reverse mortgage grows faster each year. Here is what happens to a single $100,000 drawdown at two illustrative interest rates. The 10.5% figure is the rate the Retirement Commission's research used in 2024, as offered then by the largest provider; 8.5% shows a lower rate. These are not current offers; check the rate you are quoted.
| Years after borrowing | Loan at 8.5% a year | Loan at 10.5% a year |
|---|---|---|
| 0 | $100,000 | $100,000 |
| 5 | $150,366 | $164,745 |
| 10 | $226,098 | $271,408 |
| 15 | $339,974 | $447,130 |
| 20 | $511,205 | $736,623 |
At 10.5% the loan doubles in about 7 years; at 8.5%, in about 8.5 years. Fees would add to these figures. Meanwhile your home may be rising in value, which offsets some of the growth. The Commission's own modelling shows how much the house price matters. In its example of a 75 year old with $610,000 of home equity borrowing at 10.5%, with no house price growth, the share of equity left to the homeowner falls to about 60% after 10 years and 33% after 15. With house prices growing 6% a year, almost 80% is left after 10 years and 70% after 15.
The Commission draws two practical lessons. First, regular small drawdowns keep far more of your equity than one large lump sum, because each dollar is borrowed later and compounds for less time. Second, if you do take larger sums, borrow only what you need, not what you can, and avoid borrowing in advance for costs you expect later.
Costs and protections
Costs
- Interest. The Commission calls interest the key cost, and says it is higher than on a normal mortgage because of the extra risks to the lender and a less competitive market. It found New Zealand products appear costlier than in larger markets.
- Upfront costs. There are costs to set the loan up.
- Ongoing costs you still pay. You must keep paying insurance, rates and maintenance. Falling behind can put the loan in default.
Protections
- No negative equity guarantee. The Commission describes this as ensuring that you, or your estate, will not have to meet any shortfall if the loan ends up larger than the eventual sale price of the home. Check that any product you consider includes it, and on what conditions.
- Advice before signing. The Commission recommends seeking financial advice to understand whether a product is right for you. Independent legal advice is also wise for any loan secured on your home.
The Commission also points out that, where income really does fall short, equity release is less costly than other borrowing for everyday spending, such as personal loans or credit cards.
Who might it suit?
The research behind the Commission's brief found that about 25% of households aged over 65 are "asset rich and income poor": income below the median but home equity above it. Those households were more likely to be 75 or older and no longer working. For them, the Commission says, equity release can provide value for money despite the costs, especially for people who want to stay in their home for life or have no suitable option to downsize.
The brief says reverse mortgages suit people who do not need to keep the equity in their home for later, including leaving it to family. If an inheritance matters to you, the compounding works directly against it.
Home reversion
The other product the Commission looked at is home reversion: instead of borrowing, you sell a share of your home to a provider in return for an income. There is no compounding interest, and you know what share you keep. But the share is sold at a discount. In the Commission's example, homeowners sell 35% of their house and receive an income worth 25% of its value at the start (22.7% after annual fees), and the income is fixed in dollars, so inflation erodes it.
Reverse mortgage or downsizing?
| Downsizing | Reverse mortgage | |
|---|---|---|
| Do you move? | Yes | No |
| What you get | Cash, after sale and purchase costs | A loan, as a lump sum or regular amounts |
| Ongoing cost | None, and the money earns a return | Interest that compounds, plus fees |
| What is left for your estate | The smaller home, plus unspent savings | The home's value less the grown loan |
| Main risk | The costs and upheaval of moving | Equity eroding faster than expected |
Our downsizing calculator shows what releasing money adds to your pay for life. For our example couple, $100,000 released at 75 adds about $63 a week. Our downsizing guide works through it.
Questions to ask before you sign
- What is the interest rate, is it fixed or floating, and how often can it change?
- What are the set-up fees, ongoing fees and any fees when the loan ends?
- What will the loan balance be after 5, 10 and 15 years at that rate, for the amount I plan to draw?
- Does the product include a no negative equity guarantee, and what could cancel it?
- What happens if I move into care, or if my partner outlives me? What if family live with me?
- Can I make voluntary repayments to slow the growth of the loan, and are there charges for doing so?
- What do I have to keep paying, such as rates and insurance, and what happens if I fall behind?
Take the answers, in writing, to your own lawyer and adviser. Involve your family too if you can: they will be the ones dealing with the sale and the estate.
Why our calculator does not model them
Our calculator plans your spending from NZ Super, KiwiSaver, savings and work. It does not track a loan against your home, its interest or what it leaves your estate, so it cannot show a reverse mortgage fairly. You could enter a drawdown as "a lump sum coming in" to see the spending side, but the result would ignore the debt growing in the background. That is the very part that matters most.
If you are considering one, start with the Retirement Commission's research and its Sorted site, then talk to a licensed financial adviser and a lawyer. Ask for an illustration of the loan balance at 5, 10 and 15 years at the rate you are offered, and compare it with what your home might be worth. If your goal is to clear a mortgage before retiring, read our retiring with a mortgage guide too.
This is general information, not financial advice.
Questions
Do I have to make repayments on a reverse mortgage?
No regular repayments. Interest is added to the loan, and everything is repaid when the home is sold, usually after the last borrower dies or moves out. You still pay rates, insurance and maintenance.
Can I owe more than my house is worth?
The Retirement Commission describes a no negative equity guarantee that means you or your estate will not have to cover a shortfall if the loan grows larger than the sale price. Check that the product you are offered includes it.
How fast does a reverse mortgage grow?
At 10.5% a year, a loan roughly doubles in 7 years; at 8.5%, in about 8.5 years. A $100,000 loan at 10.5% is about $271,000 after 10 years.
What age can I get a reverse mortgage?
The Retirement Commission says these products can be accessed from age 60. It notes that starting later limits how long the interest compounds.
Sources
- Retirement Commission (Te Ara Ahunga Ora): Policy Brief 07, Home Equity Release (2024)
- Motu: Do New Zealand home equity release schemes provide value for money?
- Retirement Commission: 2022 Review of Retirement Income Policies
- Sorted (Retirement Commission)
Rules as at 12 November 2026. Spotted something out of date? Email [email protected].