Reverse mortgage boom pushes Heartland Bank profits up 9.3%

Heartland Bank specializes in reverse mortgages for seniors who are cash-strapped but have equity in their home.

Kathryn George / Stuff

Heartland Bank specializes in reverse mortgages for seniors who are cash-strapped but have equity in their home.

Heartland Bank reported a 9.3% rise in profits on the back of a surge in the number of older homeowners taking out reverse mortgages to meet the rising cost of living.

The bank reported an after-tax profit of $95.1 million for the year to June 30, up $8.1 million from a year earlier.

During the year, the bank issued a record $165 million in reverse mortgages, an increase of $63 million from the previous year.

Heartland predicted the reverse mortgage boom will continue into next year as the elderly are squeezed by rising living costs.

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“As cost of living pressures continue and retirement debt rises, greater acceptance of reverse mortgages should lead to increased demand,” the bank said in an investor presentation.

Reverse mortgages are loans made to senior homeowners, secured by the equity in their home.

Borrowers don’t have to make any repayments, rather they repay the debt, on which interest is compounded, when they finally decide to sell.

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The bank said it also had a 33.1% share of the reverse mortgage market in Australia.

At the end of June, New Zealand reverse mortgage borrowers owed him $721 million, while Australian reverse mortgage borrowers owed him A$1.154 million (NZ$1.28 billion).

The bank also reported a surge in the number of people nearing the end of their working lives who were using reverse mortgages to pay off a home loan they failed to repay while still earning money.

Heartland New Zealand reverse mortgages are variable rate loans, with the interest charged rising and falling over time.

The current rate is 7.5%, and Heartland did not raise it when Reserve Bank Te Pūtea Matua raised the official exchange rate from 2.5% to 3% last week.

Homes are most people's biggest asset, and some people choose to take out reverse mortgages in old age to make ends meet.

Peter Meecham / Stuff

Homes are most people’s biggest asset, and some people choose to take out reverse mortgages in old age to make ends meet.

The bank limits the risk of borrowers running out of equity in their home by limiting the amount it will lend.

On a $950,000 house in Auckland, Heatland would lend up to $313,500 according to its home loan calculator.

The average amount borrowed by new reverse mortgage customers was 10% of their home’s value, and the average borrower age was 78, Heartland said.

Heartland said the average loan-to-value ratio of its New Zealand reverse mortgages was 18.5%.

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