Retirement Planning can encompass many strategies. One of these is the Home Equity Access Scheme. This scheme allows senior Australians to supplement their retirement income through a Government loan by drawing against the equity in their home.
How does the scheme work?
Using the Scheme, Australians who meet the eligibility requirements are able to supplement their pension payments with a loan of up to 150% of the maximum fortnightly Age Pension rate. The loan can be taken fortnightly, as a lump sum or a combination of the two.
The payments accrue as a debt secured against the individual’s nominated Australian property. The current interest rate is 3.95% pa, with the rate compounding fortnightly on the balance until the loan is repaid in full.
The debt can be repaid on the sale of the secured property or from the individual’s estate. Voluntary repayments can be made at any time, bearing in mind that the longer the loan is outstanding, the more interest will accumulate.
Pros and Cons
An obvious benefit is that the scheme enables borrowers to continue living in their family home while drawing against the equity to supplement their income. The scheme also has a No Negative Equity Guarantee, thereby ensuring the individual (or their estate) will not need to repay more than the equity held in the property used to secure the loan.
However, taking on debt, particularly later in life, should be approached with caution. As the scheme does not require regular repayments, the interest continues to accumulate and may reduce the inheritance that homeowners can leave to their loved ones.
Seek Financial Advice
Your Financial Planner, as part of your Retirement Planning discussions, will be able to assist you in determining whether you meet the eligibility requirements and how much you can access. They will also guide you through important considerations which will help you determine whether using the scheme is appropriate for you and your family.
Karen Haarhoff is passionate about building long-term relationships with clients and working alongside them to achieve their financial and lifestyle goals. She enjoys helping clients make informed, confident decisions about their financial affairs and providing both clarity and structure around their financial affairs.