If you’re over 60, own your home and need to access money, releasing equity from your home may be an option.
How home equity release works
‘Equity’ is the value of your home, less any money you owe on it (ie your mortgage).
‘Home equity release’ lets you access some of your equity, while you continue to live in your home. For example, you may want money for home modifications, medical expenses or to help with living costs.
There are a couple of loan options to access equity in your home including:
- A reverse mortgage
- Government Home Equity Access Scheme (formerly the Pension Loans Scheme)
The amount of money you can get depends on:
- your age
- the value of your home
- the type of equity release
Reverse mortgage
A reverse mortgage allows you to borrow money using the equity in your home as security.
If you’re age 60, the most you can borrow is likely to be 15–20% of the value of your home. As a guide, add 1% for each year over 60. So, at 65, the most you can borrow will be about 20–25%. The minimum you can borrow varies, but is typically about $10,000.
How a reverse mortgage works
You stay in your home and don’t have to make repayments while living there. Interest charged on the loan compounds over time, so it gets bigger and adds to the amount you borrow. The interest rate is likely to be higher than on a standard home loan.
You repay the loan in full, including interest and fees, when:
- you sell your home
- you move out of your home, or
- your deceased estate sells your home
Reverse mortgage calculator
The moneysmart website has a great calculator to work our how much you might owe in the future
https://moneysmart.gov.au/retirement-income/reverse-mortgage-calculator
Negative equity protection
Reverse mortgages now have negative equity protection. This means you can’t end up owing the lender more than your home is worth (market value or equity).
Government Home Equity Access Scheme
The Home Equity Access Scheme (formerly the Pension Loans Scheme) is provided by Services Australia. It lets eligible older Australians get a voluntary non-taxable fortnightly loan from the Government or a lump sum payment.
How the Home Equity Access Scheme works
The loan is secured against real estate you, or your partner, own in Australia. You can choose how much you offer as security.
You can choose the amount you get paid fortnightly. Your combined pension and loan payments cannot exceed 1.5 times the maximum fortnightly pension rate.
Alternatively, you can get an advance payment of your loan as a lump sum. This is in addition to, or instead of, your fortnightly loan payments. Taking up this option may reduce the fortnightly loan payment you get for the next year (26 fortnights).
There is a maximum amount of loan you can borrow over time. This is based on your (or your partner’s) age and how much you offer as security for the loan.
What a Home Equity Access Scheme loan costs
You must repay the loan and all costs and accrued interest to the Government. You can make repayments or stop your loan payments at any time.
All loans have a negative equity guarantee. This means you won’t repay more than your home is worth (equity). Exceptions may apply.
The government loan can be a cheaper option to a reverse mortgage if a large lump sum isn’t required.
For more information about the Home Equity Access Scheme, visit Services Australia.
There is risk involved and a long-term financial impact in these loans, please get independent financial or legal advice before you go ahead.
Information sourced from https://moneysmart.gov.au
