A reverse mortgage runs backwards from the loan you had on this house thirty years ago. Then, the bank gave you a large sum and you paid it down. Now, you own the house outright, the bank gives you a smaller sum against it, and nothing is paid back until the house is sold. The balance goes up instead of down.
That single reversal explains almost everything else about how these loans behave, so it is worth holding onto as you read.
You Borrow Against The Home And Keep Living In It
The lender registers a mortgage over your property, the same way a bank registers one for a standard home loan. Your name stays on the title. You keep living there, you keep paying the rates and insurance, and you keep the responsibility for maintaining the place.
What changes is that there is now a loan secured against the house, and that loan has a floating interest rate attached to it. In New Zealand only two lenders offer the product, Heartland Bank and SBS Bank, and both require that they are the first and only mortgage on the property. If you still owe money on an existing home loan, the reverse mortgage has to be large enough to clear it.
How The Money Is Paid Out: Lump Sum, Monthly Or Reserve
Both lenders let you choose how the funds arrive, and you can combine the options.
A lump sum at settlement. Useful for a single large job such as a roof or a car. Heartland sets a minimum initial draw of $10,000.
A monthly advance. A fixed amount paid into your account each month, typically to top up NZ Super. Heartland’s minimum is $300 a month, for a term of one to ten years, with a one-off establishment fee of $120.
A reserve facility. A pre-approved amount you leave untouched until you need it. Heartland calls this a Flexi Reserve and, since September 2026, draws on it are made through the Heartland app with no drawdown fee. SBS describes Unwind as working like a revolving credit that you draw up and down.
The reserve is the option I steer most clients towards, for one reason: interest is only charged on money you have drawn. A $60,000 reserve with $15,000 drawn costs you interest on $15,000.
Why There Are No Regular Repayments
With a standard mortgage, the bank needs your income to service the loan. With a reverse mortgage, the security is the house and the exit is the sale of the house, so the lender does not need you to make payments along the way.
Instead, each month’s interest is calculated on the balance and added to it. Next month’s interest is calculated on the new, slightly larger balance. This is compounding, and over ten or fifteen years it is the single biggest cost of the product. At Heartland’s current rate of 8.25 percent, a balance doubles in roughly eight and a half years if nothing is repaid.
You are free to make repayments whenever you like. Neither lender charges a penalty for paying some or all of it back early, though Heartland asks that a minimum balance of $5,000 stays on the loan unless you are closing it entirely. Some clients pay the interest for a few years while they still have part-time income, which freezes the balance where it started.
When The Loan Has To Be Repaid
The loan falls due when the last borrower leaves the home permanently. In practice that means one of three events: the house is sold, the last borrower moves into long-term care, or the last borrower dies.
Heartland allows up to twelve months from that point for the loan to be repaid, which gives a family time to sell properly rather than at a discount. The loan and all accumulated interest are paid out of the sale proceeds. Whatever is left belongs to you or to your estate.
Both lenders provide a no negative equity guarantee. If the balance has somehow grown past what the house sells for, the lender absorbs the shortfall. Neither you nor your estate is pursued for the difference, provided the loan conditions were met.
If only one of a couple moves into care or dies, the other carries on living in the home under the same loan. The lifetime occupancy promise applies to both borrowers, which is why both partners need to be party to the loan from the start.
A Worked Example Over Ten Years
Margaret and Tom are 72 and 74. Their Birkenhead house is valued at $950,000 and is mortgage-free. They want $40,000 to replace the deck and bathroom, and some cover for whatever comes next.
Heartland’s formula allows the youngest borrower’s age minus 40 as a percentage of the home’s value, so up to 32 percent, or about $304,000. They do not need anything like that. We set up a $40,000 initial advance and a $60,000 Flexi Reserve, and they draw $10,000 from the reserve in year four when the car dies.
At 8.25 percent compounding monthly, and assuming the rate does not change (it will), the picture after ten years looks like this:
| At settlement | Year 5 | Year 10 | |
|---|---|---|---|
| Loan balance | $40,000 | $60,300 plus the year-4 draw | $108,000 |
| House value at 3% growth | $950,000 | $1,101,000 | $1,277,000 |
| Equity remaining | $910,000 | about $1,026,000 | about $1,169,000 |
Their dollar equity is higher after ten years than when they started, because the house grew faster than the loan. The loan still consumed around 8.5 percent of the home’s value, which is the share their children will not inherit. Had they drawn the full $100,000 on day one, the ten-year balance would have been about $228,000 instead.
The lesson most clients take from this is to borrow slowly.
Where Advice Fits Before You Apply
Both lenders require you to take independent legal advice from your own solicitor before signing, and both encourage you to involve your family. Neither requirement is a formality. The solicitor explains the contract; the family conversation prevents the surprise at the end.
My role sits before either of those. I look at whether a reverse mortgage is the right tool for what you need, compare how Heartland and SBS would treat your age and property, and work out the smallest structure that solves the problem. If it still makes sense, I prepare the application and manage it through to settlement. You can read how reverse mortgage advice works with me, or go back to the complete guide to reverse mortgages in NZ for the wider picture.
