‘Scary’ rise in mortgage debt among over-65s

High house prices could be one of the factors behind the increase in the number of people reaching the age of 65 with unpaid mortgages on their homes.

Christel Yardley / Stuff

High house prices could be one of the factors behind the increase in the number of people reaching the age of 65 with unpaid mortgages on their homes.

There has been a “frightening” increase in the size of home loans held by people over the age of 65 and an increase in the use of reverse mortgages to pay them off, according to credit reporting bureau Centrix.

There are now 134,000 mortgages on which money is owed by borrowers over the age of 65, up from 118,000 in June 2018.

“What’s scary is how much the value of mortgages has changed over the last five years,” said Centrix chief executive Keith McLaughlin.

As of June 2018, over-65s owed $16.9 billion on their homes, but that amount had risen to $23.4 billion and the average owed had risen from just over $143,000 to almost $175,000.

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Exactly why there has been such a surge in mortgage debt over the age of 65 is a matter of speculation, but McLaughlin said individual reasons for taking on debt over age 65 would be varied.

They would include life events such as divorce, throwing people down tougher financial tracks, people who had used their home as collateral for an investment property or those who had extended their home loans to help their children access at the property level.

“Mom and Dad’s bank is important,” McLaughlin said.

“People top up their mortgage to help the kids.”

Whatever the reasons, a growing number of retirees are turning to reverse mortgages to pay off their home loans.

A reverse mortgage allows people to borrow against their home, but only pay off the loan and accrued interest when they finally sell the property.

KEVIN STENT/STUFF

The fall in house prices accelerated in July, according to data from CoreLogic, with Christchurch also turning negative.

Heartland Bank, which has the largest reverse mortgage business in the country, said that over the past 15 years it had seen a 55% increase in the proportion of reverse mortgages used to pay down debt.

Andrew Ford, managing director of reverse mortgages at Heartland Bank, said downsizing to a smaller home was an available strategy for homeowners who still had debt after age 65.

But many were choosing to “age in place” and take out reverse mortgages to pay off the rump of their home loans.

Heartland Bank's reverse mortgages are increasingly being used by people paying off their home loans after retirement.

ROB STOCK / Stuff

Heartland Bank’s reverse mortgages are increasingly being used by people paying off their home loans after retirement.

Ford said people using a reverse mortgage to pay off a home loan often also took out a larger loan to provide cash to supplement NZ Super payments.

“The way we retire is changing, and the growing proportion of Kiwis retiring with debt is proof of that,” Ford said.

He said nearly one in five people reach the age of 65 with money still owed on their home.

Many people continue to work past the age of 65, when they are eligible for NZ Super.

Data from the intergovernmental economic organization OECD shows that in 2020 the average retirement age for men in New Zealand was 68.2 and for women it was 65.8.

Retirement ages for both men and women in New Zealand are at the upper end of the OECD average.

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