ASB has announced it will be the first major New Zealand bank to offer reverse mortgages. The company is rolling out the HomePlus in response to the demand from its senior customers looking for a solution. The product will offer borrowers an adjustable rate at 7.75%, which includes the cost of funding the loans, the risk factor, the guarantees provided and the length of time the money would be tied up.
According to the NZ Herald, many in the country have predicted reverse equity mortgages will become more popular as an ageing population sitting on big equity gains from the property boom seek to free up cash to pay for medical bills, holidays and living expenses in extended retirements.
ASB said the time was right for a major bank to offer reverse mortgages, which previously have only been offered by specialist lenders at relatively high interest rates.
“These loans are specifically suited to people older than 65 years of age, and enable asset rich but cash poor home owners to borrow money against part of the equity they have in their home,” ASB said. “While borrowers can repay all or part of the loan at anytime, normally the loan and outstanding interest is recovered by the bank when the home owner sells the property, or from their estate,” they said.
“In Australia home equity release loans are becoming more common, but until now have been offered in New Zealand by mainly specialist lenders,” said ASB’s CEO of Customers, Markets and Products, Catherine McGrath.
The bank said it would comply with the voluntary code of conduct developed by the Office of Senior Citizens.
“We will also set new ethical standards, particularly around ensuring borrowers fully understand the arrangement into which they are entering, providing guarantees around lifetime occupancy and promising people never have to repay more than the value of their property,” McGrath said.
“The 90 day cooling off period also ensures borrowers who change their minds can repay their HomePlus loan,” she said.
“This type of borrowing is not for all senior customers, and we recommend it only for those customers who have no other means of accessing cash.