It is planning to pay about A$36 million (NZ$39.8 million) for Challenger Bank. The final price will be subject to adjustments for asset variations at the time of completion.
Heartland says it intends to cover the costs of the acquisition through existing resources.
Heartland is dual-listed in New Zealand and Australia, and dominates the reverse mortgage market in New Zealand.
Challenger, based in Melbourne, describes itself as "an investment management firm focused on providing customers with financial security for a better retirement".
It is a digital bank and deals in various savings and lending products, such as government-guaranteed retail term deposits and home loans.
Its system is capable of taking on reverse mortgage origination and subject to completion of the deal, Heartland’s existing reverse mortgage and livestock businesses in Australia will be transferred to Challenger Bank.
As of June 30, Challenger Bank had A$89 million ($98.4 million) of retail lending, A$17millioin ($18.8 million) of corporate lending and A$228 million ($252 million) of deposits.
Heartland says the Challenger purchase will enable further expansion in Australia.
For regulatory reasons, Heartland will be required to hold Challenger Bank through an Australian incorporated non-operating holding company, which is approved and regulated by the Australian Prudential Regulatory Authority.
Heartland has dumped its earlier plans to acquire Avenue Hold and Avenue Bank Limited. It previously had a non-binding memorandum of understanding with Avenue Hold for the potential acquisition of Avenue Hold and Avenue Bank.
In another development, Heartland revealed reverse mortgages in both New Zealand and Australia maintained strong growth, recording 24.4% and 19.3% annualised growth in the first quarter.
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