Retirement is a time to relax and enjoy life, but sometimes income from superannuation, pensions, or savings might not be enough to live the lifestyle you desire. Fortunately, there are ways to raise additional funds without necessarily downsizing your home. Below are some of the options available for retirees to unlock funds for a better retirement.
Home Equity Release Schemes
The Home Equity Release Scheme is a government program that allows retirees to access the equity in their home while continuing to live in it. This scheme is designed for older Australians who want to increase their income without selling their property.
Eligibility
To qualify for the scheme:
- You must be of Age Pension age.
- You must own or partially own your home.
- The home must be your principal place of residence.
How Much Can You Raise?
The amount you can access depends on your age, the value of your home, and your financial situation. Generally, the older you are, the more you can borrow. Under this scheme, you can borrow up to 150% of the maximum fortnightly pension rate.
How Are the Funds Paid?
Payments can be made in regular fortnightly instalments or as a lump sum, offering flexibility based on your needs. Whether you want to cover day-to-day expenses, fund home renovations, or travel, you can access funds without moving from your home.
Reverse Mortgages
A reverse mortgage allows retirees to borrow money using their home as security, without the need to make repayments while living in the property. Repayments are typically deferred until the home is sold, either when the borrower passes away or moves into long-term care.
Lender Options
Though major banks no longer offer reverse mortgages, several non-bank lenders continue to provide reverse mortgage products tailored for retirees. Some of the notable non-bank lenders include:
- Heartland Finance
- Australian Seniors Advantage Group
- Household Capital
Eligibility
To be eligible for a reverse mortgage:
- You need to be at least 60 years old.
- You must own your home, or most of it.
- Your home must meet the lender’s requirements regarding location and construction.
How Much Can You Borrow?
The amount you can borrow depends on your age, the value of your property, and the lender’s criteria. Typically, the older you are, the more you can borrow. A person in their mid-60s might be able to borrow around 15-20% of their home’s value, while someone in their 80s may borrow a higher percentage.
Safeguards Against Negative Equity
One key feature of reverse mortgages is the negative equity guarantee, which ensures that you will never owe more than the value of your home when it is sold. This protection means that even if property values fall, your estate won’t be left with any unpaid debt after the sale of the property.
Other considerations
- Reverse mortgage interest rates are generally higher than standard home loans, and the interest compounds over time. You are not required to make regular payments during the term of the loan.
- The loan is repaid when you sell the house, move into permanent care, or pass away.
- You can live in your home for as long as you wish, using the loan proceeds to enhance your retirement lifestyle.
For more details, visit the government Moneysmart website, which provides additional information on the home equity release scheme and reverse mortgages.
While these options provide several ways for retirees to raise additional funds, each option has specific conditions and may not suit everyone. It’s essential to consult with a financial advisor who can give personalised advice tailored to your financial circumstances. This ensures you choose the best strategy for a comfortable and sustainable retirement. For more information or personalised guidance, feel free to contact our team of experts at LZR.
