Equity Release Mortgage Explained
This is also known more commonly in New Zealand as a "Reverse Mortgage" or a "Reverse Equity Mortgage". This is simply because this is how this type of product is widely promoted and advertised here.
The demand for this type of product has resulted partly from an aging and retired population, who are becoming increasingly CASH poor and ASSET rich. Basically they are becoming CASH poor because they are in retirement and no longer generating an income.
Fundamentally the product allows the individual to borrow against the value of their property without having to make any repayments on this loan. All interest due is just added to the total mortgage which only becomes payable when the property is sold.
Added to this product is something called a lifetime guarantee. This allows the individual to stay in their property for the rest of their lives. This guarantee has a negative equity clause which essentially means that the individual cannot ever owe more than what the property is worth.