Councils around the country are struggling to keep a lid on rate rises, and if you're a homeowner, you might be wondering how you're going to pay that bill.
Central Otago District Mayor Tim Cadogan recently suggested retirees look at a reverse mortgage to get more cash to help with the cost of living.
The Otago Daily Times reported that Cadogan, during consultation on the Central Otago District Council’s annual plan, had suggested reverse mortgages could be used to pay for the proposed average rates increase of 18.4%.
Speaking to Seven Sharp, Cadogan said his suggestion had been met with a "mixed reaction".
"A lot of people said it was an outrageous thing for me to say, whereas I'd say it's something I said in an outrageous situation. Other people have said it is the reality. It's a hard option, but it is an option."
What exactly is a reverse mortgage, and what are the pros and cons?
Enable.me founder and financial adviser Hannah McQueen explained the ins and outs to Seven Sharp.
"It's a mortgage, but it's not like your typical mortgage. Your home is used as security. You're paying interest, but it's at a higher interest rate.
"Instead of making monthly repayments to reduce the mortgage balance over time, you tend to do nothing. You don't have to pay anything, which is great," explained McQueen.
"What happens is the interest cost gets added to the loan, and you end up paying interest on the interest.
"That's where the true cost of a reverse mortgage can balloon out if you're not managing it properly."
What about the children of retirees who take on a reverse mortgage - do they miss out on an inheritance?
"You've always got to fix your own oxygen mask first when it comes to your retirement planning. If you want to help your kids, perhaps into their own property using the equity in your home, [a reverse mortgage] might not be able to allow that.
"The key here is that the cost of the reverse mortgage can be sizeable over time."
Cost can be one of the pitfalls of a reverse mortgage, said McQueen.
"It can be quite costly to set up. You've got the interest on top of interest cost, but you've also got to be paying for a lawyer to get everything signed off, and an evaluation. The fees to set up can be quite high," she explained.
"The key here is that [a reverse mortgage] is going to be eroding that beautiful nest egg that you've built in your home. Not everyone has retirement savings, but many people in retirement own a home - that's their lifeline.
"We just don't want to erode that value too quickly."
SHARE ME