Funding Your Retirement: 5 Home Equity Release Options for Australian Retirees

As an Australian retiree, you’ve worked hard to build a comfortable life and deserve the best retirement possible. If you’re looking to supplement your retirement income or fund your golden years, you may be sitting on a goldmine – the equity in your home. With so many competing home equity release solutions in market, it can be hard to know where to start so we’ve broken them down for you…

1. Downsizing: Trading down to a cheaper home.

Downsizing can be a liberating experience, allowing you to simplify your life and unlock the equity in your home.

• How it works: Sell your current home and use the proceeds to purchase a smaller, lower cost and more manageable property. Done correctly, where the new property and costs associated with the move total less than the proceeds from your home sale, you’ll have unlocked some of the equity in your home.
• Usual costs involved: Real estate agent fees, legal/conveyancing fees, stamp duty, and moving costs.
• Who it works well for: Retirees who want to move into a smaller more manageable space and unlock equity at the same time.
• What to consider: Emotional attachment to your family home, the costs associated with transaction property and moving (e.g. stamp duty) can often make accessing this equity expensive.

2. Home Equity Access Scheme: Government subsidised debt (subject to eligibility)

The government-backed Home Equity Access Scheme is designed to support eligible retirees, providing additional equity on a fortnightly basis to supplement the aged pension and other government payments you might receive.

• How it works: Eligible retirees can access up to 150% of the of the full age pension amount per fortnight, secured as a loan against your home.
• Usual costs involved: The loan costs around $500 to setup (varies based on your circumstances) and charges an interest rate at time of publishing this article of 3.95% p.a. The loan must be repaid when you sell your home or be paid from your estate.
• Who it works well for: Pensioners who need a financial boost for everyday living expenses or medical bills.
• What to consider: The loan is secured by your property and must be repaid. The scheme is a very low cost way to access equity, but provides access to much less equity than other methods. Not everyone is eligible and the amount you are eligible for can vary.

3. Reverse Mortgages: A flexible debt solution

Reverse mortgages offer a flexible way to unlock the equity in your home, with no repayments required until you pass away or sell your home.

• How it works: Receive a lump sum, regular payments, or a line of credit, with flexible repayment terms.
• Usual costs involved: Establishment fees, interest rates, and ongoing fees.
• Who it works well for: Retirees who want to stay in their home, supplement their retirement income, and enjoy financial flexibility.
• What to consider: Accumulating debt, impact on pension eligibility, and potential negative equity.

4. Home Reversion Schemes: A flexible equity solution

Home reversion schemes provide a lump sum payment in exchange for a percentage of your home’s ownership.

• How it works: Sell a portion of your home to a provider and receive a lump sum or regular payments. It can optionally be used with a downsize to unlock additional equity.
• Usual costs involved: No upfront costs, but you’ll receive less than the market value of your home.
• Who it works well for: Retirees who want to access a lump sum, don’t mind sacrificing some ownership, and want to stay in their home.
• What to consider: Loss of ownership, potential for poor returns, and impact on pension eligibility.

5. Life Estate: A maximized equity release which retains home ownership

A Life Estate involves the sale of your property to an investor who will grant you back a life interest. This leaves you as the owner of the property for life whilst drawing out a maximized lump sum of cash, where the investor has in effect bought the right to inherit it.
It provides access to more equity than any other solution, whilst retaining ownership of the family home (for life), providing the ultimate ‘have your cake and eat it too’ solution for retirees who want to maximise their retirement.

• How it works: You sell your home to an investor in return for them granting you a life interest in the property and a maximized lump sum payment.
• Usual costs involved: Costs vary. Options exist with zero upfront costs. Extensive marketing of your property may involve further costs. You will receive less than the market value of your home.
• Who it works well for: Retirees who want to retain the family home and maximise their equity release. This can provide for a better standard of living in retirement, the creation of tax free income for life, financial assistance or bequeathments for family or other organisations prior to passing away or anything else you might like to spend money on.
• What to consider: As your home is formally sold, you can qualify for the super downsizer contributions scheme; this allows you to create a tax free income for life in addition to home ownership for life.  As your home is sold, this provides a ‘have your cake and eat it too’ solution where your home can no longer be left in your will to a beneficiary.