Releasing Your Home’s Value

In order to live comfortably in their golden years, many people are searching for ways to access the increasing equity in their homes as a result of rising real estate prices.

For the majority of us, the largest or most important part of our wealth is represented by our homes. However, it’s an advantage that might take some time to realize. Selling your house could take some time, and you’ll still need a place to live. Additionally, you are buying in a rising market if you are selling in one.

 

Photo by Picas Joe

 

There are several ways to tap the equity in your house, but consider the implications for your specific situation first. It’s advisable to seek independent financial advice because this is such a huge decision and there are a lot of complicated financial products available. We can help you understand how this could affect you both now and in the future.

 

Reverse mortgages

Reverse mortgages, which let you borrow money using the equity in your house as security, are more common than ever.

Today, a lot of small bank and non-bank lenders offer reverse mortgages due to the advent of stricter regulatory standards.

Your age determines the maximum amount you can borrow with your house serving as security. You should be able to borrow about 20% of your home’s value when you’re sixty years old. As you age, this number often rises, so by the time you’re 65, you might be eligible to borrow between 20 and 25 percent.

One benefit of a reverse mortgage is that you don’t have to pay back the loan while you’re still living in your house. The loan is returned when you sell your house or move out, interest and costs included. Generally speaking, interest rates on loans are greater than those on conventional mortgages. At the moment, rates range from somewhat over 8% to slightly under 10% on average.

To assist you in determining if a reverse mortgage is the best option for you, the Australian Securities and Investments Commission MoneySmart website offers a reverse mortgage calculator.

Read: 8 Common Retirement Mistakes and How to Avoid Them

 

An Initiative by the Government

A well-liked substitute to private reverse mortgage products is the Federal Government’s Home Equity Access Scheme, which is expanding by almost 60% annually.

The Program offers loans to senior citizens who qualify, secured by your house. Either a lump sum or a fortnightly tax-free payment is available to you.

You can choose to make or cease repayments at any time, but the loan and all associated charges must be returned to the government. You have the option to transfer the debt to another property or repay it at settlement if you sell the property.

In the event that a debt remains unpaid upon your passing, the government will pursue repayment from your estate.

3.95% is the interest rate at the moment.

 

Home Reversion

Home reversion is an additional method of accessing your home’s equity while you continue to live there, and it works somewhat differently than a reverse mortgage.

Since it’s not a loan, there are transaction costs, but no interest is paid. For the portion of the property you sell, the provider gives you a discounted sum based on its current value. The provider then gets the same proportion of the sale price when the property is sold, thus the more your home appreciates in value, the more the provider makes.

 

More Options

Selling your house and purchasing a smaller one is another method to benefit from the equity in your house. You might be able to pay off the mortgage and invest or spend any money left over by downsizing.

You can add up to $300,000 (per spouse) to your superannuation fund from the sale if you are 55 years of age or older. Although it doesn’t count toward the contribution cap, it is nevertheless regarded as a non-concessional contribution.

You might also think about subdividing if your house is on a big block or turning it into a dual occupancy.

It’s important to carefully consider the implications and terms of equity release, as it may affect your income and inheritance for future beneficiaries. Always double-check important details and seek professional advice if necessary.

To learn more about your options and look forward to enjoying your golden years with confidence, get in contact with us.

 

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