If you’re an Australian homeowner over the age of 55, you could withdraw cash-free tax from the value of your home and boost your retirement income.

Read on to find out about home equity and other loan options available to you as someone over 55.

Key Takeaways:

  • Home equity is the difference between the market value of a property and the outstanding balance of liens.
  • An equity release loan lets you access equity tied up in your property in the form of a lump sum.
  • Most equity loans are only available to people over the age of 55.

What is home equity?

Home equity is the difference between the fair market value of a property and the outstanding balance of loans.

The home equity of a property increases as the owner makes regular payments against the mortgage balance or if the value of the property increases.

What is an equity release loan?

An equity release loan lets you access the equity that’s tied up in your home. This type of loan is available to people over 55 years old, and your options depend on your property value and how much equity you own.

There are two types of loans available to you.

Lifetime mortgage

A lifetime mortgage is when you take out a loan on your home which isn’t repaid until your death or admission into long-term care. The mortgage is then passed on to your living relatives.

Home reversion or reverse mortgage

A home reversion, or reverse mortgage, is when you sell a portion of your home in return for a lump sum. Despite selling a portion of the equity, you can still live in the property until your death, as long as you continue upkeep on the home.

The percentage you retain remains the same after taking out a reverse mortgage despite a change in property value unless you decide to sell more equity in your home.

What are the benefits of an equity release?

Releasing home equity can have various benefits for Australians entering into retirement. These include

Care costs

If you’re approaching long-term care, you’ll want to have some cash saved. Releasing home equity can take the pressure off family members to pay for your care.

Boosted retirement income

If you’re struggling to make ends meet on your current retirement income, consider releasing equity to boost your regular ongoing income.

Home improvements

A lump sum could help you complete home improvements and boost the value of your property for years to come. Taking out this type of loan is a tried and tested way to raise funds quickly and is less expensive than a regular loan since you’re borrowing against the value of your home.

Paying bills

Use an equity release to pay mounting bills or clear debts.

Building inheritance

If you want to leave a sizeable inheritance for family members, take out equity in your home. Depending on your house value, you could receive a significant lump sum.

What are the potential negatives of an equity release?

Taking out an equity release isn’t for everyone, and you should be aware of the potential downsides of taking out a loan. These include

  1. Interest on your loan will increase your debt
  2. You could face an early repayment charge if you pay off your home equity loan before the contract ends
  3. You’ll have to pay lender and solicitor fees depending on the type of loan you take out
  4. Your state benefits might be affected

Build your investment property portfolio with an equity release

If you’re interested in building a property portfolio and generating a rental income stream, consider using the equity in your home as an investment.

No Negative Equity Guarantee (NNEG)

Devised in July 2022, a No Negative Equity Guarantee protects you from owing more on your reverse mortgage than the amount your property is worth.

So, upon your death and the sale of your home, if you owe more on your reverse mortgage compared to the value of the property, the remaining debt is nullified.

What are other loan options available to me?

If a home equity release doesn’t sound suitable for your financial situation, various other options are available.

Pension loans scheme

The Pension Loans Scheme, renamed the Home Equity Access Scheme in January 2022, allows Australians over the age of 55 to take out a non-taxable loan from the Australian government to subsidise their pension. This differs from an equity release in that you use your home equity as security for the loan.

Once you’ve borrowed money, you can receive either a lump sum or a fortnightly amount.

Use equity in your home.

If you own a home, you’re likely to have built significant equity. Access your hard-earned money today and invest it in other areas of your life such as building your investment portfolio, carrying out a renovation, or building a worthy inheritance for your family.

For more professional advice on home equity release, contact Lendstreet.

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Is home equity release a good idea?

Equity release can be a good idea depending on your personal circumstances. If you have equity in your home, consider taking out a loan to pay off debts, make home improvements, or invest in other properties.

What are the pitfalls of equity release?

Negatives to taking out home equity include increased debt on your home, the inability to take out more loans on your home, and costly fees.

How does home equity release work?

Releasing equity from your home gives you access to money locked into your property, which you’ll receive in the form of a tax-free lump sum.

How much equity can I release from my home?

If you’re eligible for an equity loan, the amount you can release depends on the value of your property. You can usually take out between 20 and 60 percent of your home value. Factors affecting your ability for equity release depend on your age and property value.

Can I release 100% equity from my home?

No, usually you can only take out between 20 and 60 percent of your current home value.

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