How Else Can You Access Your Equity
Pension Loan Scheme
People of Age Pension age (or their partners) who are not eligible to receive a pension because of their income or assets, but not both, or those who only receive a part pension, can access capital tied up in their real estate assets under the Pension Loan Scheme.
For example Frank was on part pension due to his high level of assets but found that he needed more income to get by. Under the Pension Loans Scheme he was able to increase his age pension entitlement to the full pension with the difference in his payment and subsequent payments forming the loan. Interest is charged on the loan amount and a mortgage is taken out over the property by Centrelink.
Further information on this facility can be obtained from Centrelink or by searching on their website, www.centrelink.gov.au.
Shared Equity Schemes
These options are often only available for properties in certain locations. These options are also known as ‘Home Reversion Schemes’ and ‘Shared Appreciation Mortgages’.
Home Reversion Schemes allow the provider to buy a percentage of or the whole home at a discounted price. In return the borrower receives a lump sum or monthly income and life tenancy. For example -
Katie and Matt need $30,000. The financial provider offered to give them the money in exchange for 25% of the future value of their home when it is sold. The house is currently valued at $200,000 and it is calculated the future value in 15 years will be $500,000. Katie and Matt are selling 25% of the future value of their home for 15% of its present value. If the property is sold in 15 years for $500,000 the provider will receive $125,000. If the property sold for $350,000 the provider would receive $87,500. If it sold for $800,000 the provider would receive $200,000. Rebates may be available and understanding how they apply is vital.
Shared Appreciation Mortgages entitles the provider to a larger proportion of the home’s future growth in return for lower or no interest rates. The amount receivedis an actuarially calculated percentage of the expected proceeds of the sale. Where the property sells for a higher price than estimated the extra is split between the provider and the owner/s or estate. These tend to be used in conjunction with a ‘forward’ mortgage where repayments are required during the loan term.
Downsizing can free up equity while maintaining full home ownership. This is simply selling your existing home and purchasing a property of lesser value. Any surplus funds are then available for use. It would be advisable to check the costs involved such as stamp duty.
