Options for Accessing Home Equity
Home equity release is a scheme that enables homeowners to access the value of their property while still living in it. This is calculated by subtracting any outstanding mortgage debt from the current market value of the property. There are several ways to access home equity, such as a reverse mortgage, home sale proceeds sharing (home reversion), an equity release agreement, or the Government's Home Equity Access Scheme.
Before making a decision about home equity release, it is important to consider the impact on various aspects of your life, including eligibility for the Age Pension, future aged care expenses, living costs, medical bills, and home maintenance, as well as the inheritance you leave for your loved ones when you pass away. Additionally, if you share your home with someone, it is important to consider whether they will be able to remain there after you move out or pass away.
Borrowing money to invest could put your entire home at risk, not just the portion you are using to invest. Seeking advice from a qualified and independent professional, such as a financial adviser or legal expert, is advisable before making any decisions.
A reverse mortgage allows you to borrow money against the equity in your home, without having to sell it. Depending on your age and the lender's policies, you can choose to receive the money you borrow in a variety of ways. For example, you may opt for a regular income stream, a line of credit, a lump sum payment, or a combination of these options. You don't have to make repayments while you're living in your home, but interest on the loan compounds over time, making the debt grow larger. You repay the loan (including interest and fees) when you sell your home, move out, or when your estate sells your home after you die.
The cost of the loan depends on factors such as how much you borrow, how you take the money, interest rates and fees, and how long you have the loan. Over time, your debt will increase and your equity will decrease. Reverse mortgages taken out after 18 September 2012 come with negative equity protection, which means you can't end up owing more than your home's market value or equity.
'Home sale proceeds sharing' or 'home reversion' is an option for homeowners to sell a proportion or a 'share' of the future value of their home while they still live there. In return, they receive a lump sum payment and keep the remaining proportion of their home equity. Homeowners pay a fee for the transaction and to get their home valued, but it is not a loan, so there is no interest.
An equity release agreement allows you to sell a portion of the value of your home and receive a lump sum or instalment payments in return. You continue living in your home and pay fees for the portion you've sold, which cover the investor's share of your home's equity. Over time, your equity reduces to cover the fees you pay. When the agreement ends and your home is sold, the investor gets their share of the proceeds.
The Home Equity Access Scheme is a non-taxable, voluntary loan provided by the Australian Government to eligible older Australians to supplement their retirement income. The loan is secured against real estate owned by the borrower and their partner, and they can choose how much to offer as security and how much to get paid fortnightly, up to a maximum amount. Repayment can be made at any time and there is a negative equity guarantee.
In conclusion, home equity release is a viable option for homeowners to access the value of their property. However, it is important to consider the potential impact on various aspects of your life, and to seek advice from a qualified and independent professional before making any decisions.
Source: https://moneysmart.gov.au/retirement-income/reverse-mortgage-and-home-equity-release