For many Australians, a significant portion of their wealth is tied up in their homes as they approach retirement. While income sources like superannuation and the Age Pension can provide some support, they may fall short of securing the lifestyle you envision in retirement.
One common solution is downsizing—selling your home and moving to a smaller property. This can free up funds to invest or contribute to your superannuation. However, not everyone is ready for a change of address. The good news is there are ways to access the equity in your home without moving.
Home Equity Access Scheme (HEAS)
If you or your partner receive the Age Pension, the Home Equity Access Scheme (HEAS) may be worth exploring. This government-run initiative allows older Australians to borrow against their property’s value to receive an income.
You can choose to receive funds as fortnightly payments, a lump sum, or a combination of both. While repayments are voluntary and can be made at any time, full repayment typically occurs when the property is sold or the estate is settled.
It’s important to note that interest accrues fortnightly on the amount borrowed. This compounding effect can significantly increase your loan balance over time, especially with lump-sum advances. However, the government’s No Negative Equity Guarantee ensures you’ll never owe more than your property’s market value.
Reverse Mortgage with a Lender
A reverse mortgage offers another way to unlock your home equity. Provided by private lenders, this option is similar to the HEAS, allowing you to borrow against your home while still living in it.
Interest compounds on the borrowed amount, and the loan is generally repaid when the property is sold, or the estate is finalised. However, you can choose to make repayments earlier if desired.
Most reverse mortgages taken out after 18 September 2012 include safeguards against negative equity. If yours predates this, review your agreement to check whether such protections are included.
Home Reversion
Home reversion involves selling a portion of your home’s future value to a provider in exchange for a lump-sum payment. Unlike a loan, it does not accrue interest. Instead, the provider receives a share of your home’s eventual sale price.
For example, if you sell 10% of a $500,000 property, the provider will receive 10% of its future sale price. Should the property sell for $700,000, they would receive $70,000.
While home reversions avoid interest charges, they involve an immediate loss of equity, which may affect future financial flexibility. These agreements are also less regulated than reverse mortgages, so it’s crucial to review the terms carefully—especially regarding residency rights.
Whether you’re exploring these options for everyday expenses or aged care costs, consulting a financial adviser is essential. They can help you understand the benefits and risks of each strategy and how they may affect your Centrelink entitlements.
Written and accurate as at: November 14, 2024
This information provided in this article is general advice only and has been prepared without taking into account your own objectives, financial situation or needs. Before making a financial decision based on this advice, you must consider whether it is appropriate in light of your own needs, objectives, and financial circumstances, and where relevant, obtain personal financial, taxation or legal advice. Where a financial product has been mentioned, you should obtain and read a copy of the Product Disclosure Statement (PDS) prior to making any decisions about whether to acquire a product.