EQUITY RELEASE OPTIONS
How to release equity
from your home
As Australia’s leading reverse mortgage provider, Heartland are often asked about the other forms of home equity release available in Australia.
In addition to reverse mortgages, the other main forms are the Federal Government’s Pension Loans Scheme, and Home Reversion. If you would like to know more about these and how they compare to reverse mortgages, we have put together a summary for you, which is as follows.
All three options, a reverse mortgage, Pension Loans Scheme, or Home Reversion provide different options that could enable you to access your home equity.
Reverse mortgages are like a normal home loan but designed for those aged 60 or more. They can allow you to release the equity in your home to live a more comfortable retirement, without having to sell. Importantly, reverse mortgages are subject to the National Consumer Credit Protection Act (NCCP), which means there are a number of borrower protections and safeguards in place such as Lifetime Occupancy and a No Negative Equity Guarantee. These protections may also allow you to take out an Equity Protection Option, giving further assurance, and peace of mind.
One of the key benefits to a reverse mortgage is flexibility, which allows you to tailor your loan to suit your retirement needs. There are many drawdown options to choose from (initially as a lump sum, regular advances for up to 10 years, or cash reserve ‘line of credit’) and your loan can be used for a range of purposes such as consolidating debt, home improvements, day to day expense, upgrading your car, traveling, and in-home or residential aged care.
Interest is added to the loan monthly, and is only repayable once you move permanently from your home. However, you are free to make repayments at any time.
A reverse mortgage is a great option for someone who would like flexibility with their funds, the ability to redraw voluntary repayments, and continue to fully own and live in their own home for as long as they choose.
Centrelink’s Pension Loan Scheme
The Federal Government’s Pension Loans Scheme is offered by Centrelink and is a way for retirees to release equity in their home, to help fund their retirement. It is similar to a reverse mortgage, however there is no requirement to follow the National Consumer Credit Protection Act (NCCP), meaning borrower protections are not compulsory requirements for the product.
The Pension Loans Scheme is designed as an income supplement that allows you to borrow up to 1.5 times the maximum age pension, paid fortnightly. The total amount you can borrow over time is calculated based on your age component amount, as well as the value of your property.
The Pension Loans Scheme can be a great option if you only require a regular income stream to help pay the bills, however it may not be suitable for those who require larger sums to pay off something like a mortgage, credit card bill, a new car, aged care deposits and much more. It is also fairly inflexible, as you cannot decide how and when to access your funds – it is a regular fortnightly pension top-up only.
A Home Reversion is a different type of product to a reverse mortgage or the Pension Loans Scheme. Instead of taking out a loan, you agree to sell a portion of your property to a provider or investor in return for a lump sum payment, with any future growth in property value shared (based on the percentages of ownership).
It is important to understand that the payment received is often much lower than the current market value. For example, you could sell 65% of the future value your home, but only receive somewhere between 25% and 40% of the value up front depending on your age.
Home Reversion is also considered a property transaction and are not subject to National Credit Consumer Protection Acts (NCCP). Protections in place are dependent on provider.
A Home Reversion can be a good option for those that want to access home equity without accumulating any debt, however there is limited availability for this product compared to a reverse mortgage or the Pension Loans Scheme, which are both available in most locations.
Here is an outline of some of the key differences, this is general and is also dependent on provider:
|Type||Loan||Loan||Selling a portion
of your home
|Age||60+||Age pension age||60+|
|Locations||Available in all capital
cities and major
|Available in most
Minimum - $5,000
Maximum - Unlimited
(based on age and
property value only)
|Up to 1.5 times
|Based on age
you are looking
from your home
a ‘line of credit’)
You can have
a combination of
|Lump sum only|
Not required until the
end of the loan
repayments can be
made at any time
Must be repaid within
12 months of
the borrower moving
Not required until
the end of the loan
can be made at any time
Must be repaid when
house is sold or
within 14 weeks of
(Not a loan)
|Subject to the
|Not subject to
|Not subject to
An important decision
The differences between reverse mortgages, the Pension Loans Scheme and Home Reversion will mean that one option may be more suitable than the other, depending on your situation and objectives.
We encourage everyone considering home equity release to do their own research, make use of the resources on our website, and speak to Centrelink, friends and family. Our Customer Care Team are specialists in reverse mortgages and can also answer any questions you may have. Please feel free to call us on 1300 889 338 or email us at [email protected].