Is equity release for you?

You might think that borrowing money on your home goes against everything you've done during your working life. You could be thinking that because you worked all those years to reduce debt, a loan would put you back to square one. You might feel that borrowing will give you less financial flexibility, or that the money you have might not last.

Alternatively you may see your house as part of your retirement plan like any other savings and now see it as time for your house to start looking look after you. Whether or not equity release is for you depends on how you feel about these kinds of issues.

In this section, you'll find information about:

• Equity release as an option for you
• Finding the right kind of equity release product

Equity release as an option for you

Is it an option? See how many of the questions below you can answer 'yes' to:

• Do you own a property?
• Do you have an unexpected expense that you can't meet from savings, or do you need to build up your "rainy day" funds?
• Are you finding it difficult to pay the day to day bills?
• Are you unconcerned about passing the full value of your property on through your will?

The more "yes's" you score, the closer you are to concluding that you need some advice on whether equity release might be right for you.

Finding the right kind of equity release product

Before you start looking for the right equity release product, you need to think about how long you might live and how much, if any, you may wish to leave in your will. Your total assets (including any property from which you want to release) have to last for the rest of your life - or both your lives in the case of a couple. Once you have reached age 65, your basic living costs may be met from NZ Super but the rest of your assets will make up the living standard that you aspire to.

One of your financial objectives may be to not leave an "accidental inheritance" - one that you hadn't planned for. If you don't want to do that, you have to get used to the idea of spending your capital - this is the money you have put aside for retirement and it can include equity release that you get from your home or another asset. Spending your capital requires planning. You need to have a clear idea of what you want to leave behind after you die and how long your capital-spending plan might have to last.

You should:

• Find out about your probable life expectancy
  This will give you an average starting point regarding how much capital you might need to last for the rest of your retirement.

Remember this is only the average - the range can be substantial. And remember also that life expectancy is tending to improve (by a bit over 1 year each decade at the moment) so it may pay to add a year or two to the answer.

Next, you need to decide whether you want to leave some money in your will. Think about a fair amount to leave in today's money - perhaps half the value of your home (rather than a specific amount, like $100,000). Then think about how much would be left, assuming you're going to spend all of the rest of your assets.

After considering these things, you might find you need to release some equity from your assets. Then think about your situation and what product may suit it best:

• Do you need a lump sum (for example, to pay for a new car or to replace your roof)? If so, can you borrow what you need when you need it? Or look at it another way: if your home is getting harder to look after, would you consider trading down to something smaller and more modern?
• Do you need regular income for the rest of your life (including the life of your partner)? Remember that you'll get NZ Super, which may look after your basic spending needs. While an annuity may be ideal, the New Zealand annuity market is currently not competitive and so these products can be expensive. Annuities, regular payments and small periodical draw-downs under a line of credit can also affect your government benefit entitlements - see Impact on government benefits. However, it won't affect NZ Super unless one of you does not qualify and is therefore subject to the income test. Maybe a lump sum with further advances from time to time may be better.
• Do you need extra income for a set period - perhaps until you sell your home or you get money from the sale of another investment? Again, a reverse mortgage or term loan is likely to be the best solution.
• Are you worried about how you're going to keep up with increases in your local council rates? First, try approaching the council - it may consider deferring your rates payments.

Remember, New Zealand Superannuation will be a regular source of income, indexed to wage inflation, and may even be enough to support your basic needs - visit the NZ Super section of Sorted for details on how much you can expect to be paid, and when you'll receive it.