What Is an Equity Release Loan?

Key Takeaways:

• Access cash from your home with an equity release loan.
• Receive a lump sum or regular instalments.
• Pay monthly repayments on an equity release loan.
• Guaranteed occupancy for as long as you like.
• Reverse mortgage involves no monthly repayments.
• Lender recovers their money when the property is sold.

Did you know that Australia’s retirement age has reached 67 years old? If you were born on 1st January 1957 onwards, you would wait longer than ever before to access your pension.

Despite this, you may still need to slow down and reduce your employment as you approach 60 years old. Funding an easier lifestyle is not always accessible, although it is possible! If you have a property, you can use this asset to your advantage by accessing equity.

Make your retirement more comfortable with an equity release loan! You can access cash to retire earlier or make those lifelong dreams come true!

What is an Equity Release Loan?

An equity release loan enables you to access the equity in your home. Depending on the property’s value, you will receive a cash lump sum or regular instalments. Importantly, you will possess guaranteed occupancy and can live in the property for as long as you like.

What is equity?

Equity is the value of your property after your mortgage, or any other secured loans have been deducted.

For example, a property valued at $600,000 with home loan debts of $100,000 has equity totalling $500,000. You could apply for an equity release loan to access some of this equity. This may provide further investment opportunities or aid a more comfortable retirement.

How does an equity release loan work?

Apply for an equity release loan with an experienced Lendstreet broker who will guide you every step of the way. Equity release financing is a new loan product, separate from any home loan you have previously taken out.

If your equity release mortgage application is successful, you will receive a sum of money that the lender agrees to. You will still be able to live in your home for as long as you like.

You will need to pay monthly repayments, so ensure that you will be able to pay the instalments comfortably.

Why should I consider an equity release mortgage?

Many Australians who have neared retirement have realised they have less surplus cash than they need to live comfortably. You may have worked hard for decades to pay your home loan but have very little savings in cash.

If you have paid off your home loan, you have an asset worth a substantial sum at your disposal. Rising property prices have increased your investment exponentially!

The equity in your home may be worth hundreds of thousands of dollars or even surpass the million-dollar threshold! Why not use some of this equity to make your retirement comfortable or to make those much-needed home renovations?

You can access some of this equity and use it as you wish! Perhaps you want to give your children a contribution towards their first home loan deposit? Or take that luxury cruise you have been dreaming about for years!

Will I qualify for equity release?

You must meet the following criteria to qualify for an equity release loan

1. Any mortgage on the property must be at least six months old
2. You have a strong financial position
3. Proven good history of repaying mortgage repayments
4. Your credit history is free of defaults
5. Your property must have a good level of equity

How much money can I access from a home equity release?

The amount of equity you can access from your home will depend on the equity you have available. It will also depend on the lender and your loan-to-value ratio.

Usually, the lowest amount you can borrow is $10,000. The highest amount you can borrow will vary from lender to lender and their assessment of your LVR.

What is a Loan to Value Ratio?

A loan-to-value ratio, or LVR, is the property’s value against the amount of money you wish to borrow. The ratio is given as a percentage.

For example, borrowing $200,000 against a property valued at $800,000 provides an LVR of 25%. Many lenders will not allow LVR to surpass 80%. Although, if you are financially very strong, you may be able to increase this to a higher percentage.

You can calculate your home equity using Lendstreet’s Home Equity Calculator and discover your LVR today!

Will equity release financing pay a lump sum?

You can choose to receive the amount borrowed in full from your equity release mortgage in one payment. Alternatively, you could access the equity release financing in small, regular payments as an income stream.

If you choose to access the equity release funds gradually, you will only pay interest on the money you have already received.

Will I lose my home after applying for equity release?

After a successful equity release loan application, you can still live in your home! The title will remain in your name, and you have guaranteed occupancy.

The lender will never force you to sell your home unless the contractual obligations of the financing are breached. The main way that you may breach contractual obligations will be by defaulting any repayments owed.

Ensure to read the equity release contract in full before signing to ensure you are fully aware of expectations. Your expert Lendstreet broker can help you understand your equity release loan fully.

How can I apply for equity release financing?

Let a Lendstreet broker take care of your equity release mortgage and find the best deal for your circumstances! We will search from a wide database of lenders to discover the perfect equity release loan for you.

You will need to submit the following evidence when making an application for equity loan financing

1. Payslips
2. Group certificate
3. Declare any liabilities
4. Proof of equity release purpose

How can I prove the purpose of equity release financing?

The evidence you need to submit to show why you are accessing equity release funds will vary. Evidence for the most common reasons you may apply for equity release are detailed below

Reason for Applying for Equity Release	Evidence You Need to Submit
Renovating your home	The quotes or contracts you have secured from your building contractor.
Consolidating debts	Bank statements showing payments made for those debts. A lender will usually request three months of statements.
Purchasing a new property	Confirmation from your conveyancer to show you are actively searching for a new property.
Investing	Confirmation from your financial planner that you are looking to invest, for example in an investment property. Relevant plans or other documentation can be submitted.

Will I pay Lenders’ Mortgage Insurance (LMI) on an equity release loan?

Most lenders will require lenders’ mortgage insurance, or LMI, if the total amount borrowed surpasses 80% of the property’s equity. LMI protects the interest of the lender in case your repayments default.

LMI can become a costly additional expense to factor into your decision. Keeping your loan debts below 80% of the property’s equity could make better financial sense to prevent paying LMI.

What is the catch with equity release?

There is no catch! Equity release enables you to access cash from the value of your home in return for monthly repayments. You have guaranteed occupancy and will not be forced to sell your home unless you default payments.

However, you MUST ensure that the monthly repayments are affordable for you throughout the loan term. Do you have alternate streams of income that will always cover the equity release repayments comfortably?

Pros and cons of an equity release loan

Still unsure whether an equity release mortgage is the best choice for you? Here are the pros and cons of equity release financing, summarised for you!

Pros

1. Receive a lump sum!
2. Choose to access a steady income stream.
3. Use the equity that is in your home so you can enjoy life.
4. Guaranteed occupancy of your home.
5. You will never be forced to sell!
6. Easy application process.
7. Lenders are keen to approve as you have a valuable asset in your home.

Cons

1. You will need to pay monthly repayments.
2. The loan will include interest payable.
3. If you default on repayments, you may lose your home.

What is a Reverse Mortgage?

A reverse mortgage is similar to an equity release loan. However, a reverse mortgage does not require any monthly repayments to be made for the funds accessed.

You can choose to apply for a lump sum amount or a regular stream of income. The application is very similar, and the lender will need to assess your LVR.

However, if successful, you do not need to pay any money back to the lender. Lenders receive the money owed when you sell the property or from your estate if you pass away.

Who can apply for a Reverse Mortgage?

You must be aged 60 years or over and own the property outright to apply for a reverse mortgage.

This requirement contrasts with equity release loans, as you can apply for equity release with a home loan still on the property.

A reverse mortgage is a perfect option if you need to access your equity without the stress of paying repayments. You can enjoy your money and make the most of your retirement.

What is the home equity access scheme?

The Home Equity Access Scheme is another method to access cash from your home’s equity. This was previously known as the Pension Loans Scheme and is provided by Services Australia.

To qualify, you or your partner must be of pension age, and you must own Australian real estate. Alternatively, you will qualify if you are in receipt of certain pensions.

You can request a loan from the scheme, paid fortnightly as additional income for you. The amount you can borrow is typically up to 150% of your pension rate.

Interest rate of 3.95% is payable on the loan and it is secured on your home.

Should I consider downsizing first?

Selling your home and purchasing another property is a great idea! You could downsize to a smaller property and have a substantial amount of money leftover from the property sale.

For example, you could sell a large family property for $900,000 and purchase a smaller home for $400,000. You would be left with $500,000 surplus cash to spend as you wish!

Downsizing this way will release equity without needing to apply for a loan and pay repayments. Of course, you will not need to pay interest, and so this saves you money in the long term.

Many individuals are emotionally attached to their property, however. You may choose an equity release loan or reverse mortgage to stay at the property. Furthermore, you may not have such substantial equity available in your property, making downsizing impossible.

Contact Lendstreet for your equity release options

If you want to view the equity release options open to you, you need an independent financial adviser!

Lendstreet experts are independent brokers who can help you regardless of your financial situation. Brokers act as intermediaries between you and the lender, reducing your stress and workload! Our services to you are free as we receive our fee from the lender.

Releasing equity can be a difficult decision for homeowners. We will ensure you can achieve your desired loan amount with a perfect equity release product. Your retirement income will increase whilst you stay living in your home!

Contact Lendstreet today and discuss how much equity you could access from your property. Call 1300 317 042 or email support@lendstreet.co.au. Alternatively, send a message through the online form, and we will contact you!

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FAQs

How much money could I access from a home equity loan?

The loan amount will depend on your property value, any debts secured on the property, and your loan-to-value ratio.

Your lender will assess your affordability to pay loan payments based on these circumstances.

What if the market value of my property declines?

Make sure your equity release contact contains a negative equity guarantee. This ensures that if your property enters negative equity, you will only have to pay the value left in the property.

You will not need to pay any additional money to the lender, even if the outstanding debt is not fully recovered.

What interest rate will I be charged on an equity release loan?

The amount of interest payable will depend on your lender. Lendstreet brokers will find you the best competitive rates, searching for favourable interest rates!

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