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EQUITY RELEASE OPTIONS

How to release equity
from your home

As Australia’s leading reverse mortgage provider, Heartland is often asked about other forms of home equity release available in Australia, such as Home Reversion and the Federal Government’s Pension Loans Scheme. If you would like to know more about these options and how they compare to reverse mortgages, we have put together the following summary for you.

All three options provide different ways in which you could access your home equity.

Reverse mortgages

A reverse mortgage is like a normal home loan that’s been designed for the needs of people in retirement. It can allow you to release the equity in your home without having to sell, helping you live a more comfortable retirement, without having to sell.

Importantly, reverse mortgages are subject to the National Consumer Credit Protection Act (NCCP), which means there are a number of borrower protections and safeguards in place, such as lifetime occupancy and a no negative equity guarantee. These protections may also allow you to take out an Equity Protection OSption, offering you further assurance and peace of mind.

One of the key benefits to a reverse mortgage is flexibility, as you can tailor the loan to suit your retirement needs. There are many drawdown options to choose from (lump sum, regular advances for up to 10 years, or cash reserve ‘like a line of credit’) and your loan can be used for a range of purposes, such as consolidating debt, home improvements, day-to-day expenses, upgrading your car, traveling and in-home or residential aged care.

Interest is added to the loan monthly and is only repayable once you move permanently from your home. However, you are free to make repayments at any time.

A reverse mortgage is a great option for someone who would like flexibility with their funds, the ability to redraw voluntary repayments, and continue to fully own and live in their own home for as long as they choose.

Centrelink’s Pension Loan Scheme

The Federal Government’s Pension Loans Scheme, offered by Centrelink, is a way for retirees to release equity in their home to help fund their retirement. It is similar to a reverse mortgage, but there is no requirement to follow the National Consumer Credit Protection Act (NCCP), meaning borrower protections are not compulsory requirements for the product.

The Pension Loans Scheme is designed as an income supplement that allows you to borrow up to 1.5 times the maximum age pension, paid fortnightly. The total amount you can borrow over time is calculated based on your age component amount, as well as the value of your property.

The Pension Loans Scheme can be a great option if you only require a regular income stream to help pay the bills. However, it may not be suitable for those who require larger sums to pay off something like a mortgage, credit card bill, new car, aged care deposits and much more. It also doesn’t offer much flexibility with regards to how and when you can access your funds – it is a regular fortnightly pension top-up only.

Home Reversion

A Home Reversion is a different type of product to a reverse mortgage or the Pension Loans Scheme. Instead of taking out a loan, you agree to sell a portion of your property to a provider or investor in return for a lump sum payment, with any future growth in property value shared (based on the percentages of ownership).

It is important to understand that the payment received is often much lower than the current market value. For example, you could sell 65% of the future value your home, but only receive somewhere between 25% and 40% of the value up front, depending on your age.

Home Reversion is also considered a property transaction and is not subject to National Credit Consumer Protection Acts (NCCP). Protections in place are dependent on provider.

A Home Reversion can be a good option for those that want to access home equity without accumulating any debt. However, there is limited availability based on location for this product compared to a reverse mortgage or the Pension Loans Scheme, which are both available in most locations.




Here is an outline of some of the key differences between these general products. This information may vary depending on the provider.

<< >>
Reverse mortgages
(dependent on
provider)
Pension Loan
Scheme
Home Reversion
Type Loan Loan Selling a portion
of your home
Age 60+ Age pension age 60+
Locations Available in all capital
cities and major
regional cities
and centres
Available in most
locations
Limited
availability
Loan/Payment
amount
Minimum - $5,000

Maximum - Unlimited

(based on age and
property value only)
Up to 1.5 times
fortnightly age
pension
Based on age
and share
amount
you are looking
to sell
from your home
Payment types Lump sum

Income stream
(monthly, quarterly,
or annually)

Cash reserve
(like
a ‘line of credit’)

Or a combination of
all three
Income stream
(fortnightly only)
Lump sum only
Loan
repayments
Not required until the
end of the loan

Voluntary
repayments can be
made at any time

Must be repaid within
12 months of
the borrower moving
permanently from
their home
Not required until
the end of the loan

Voluntary repayments
can be made at any time

Must be repaid when
house is sold or
within 14 weeks of
the borrower
passing away
Not applicable
(Not a loan)
Consumer
protections
Subject to the
National Consumer
Credit Protection
Act (NCCP)
Not subject to
the National
Consumer
Credit Protection
Act (NCCP)
Not subject to
the National
Consumer
Credit Protection
Act (NCCP)

An important decision

When deciding between a reverse mortgage, the Pension Loans Scheme and Home Reversion, one option may be more suitable for you than the others, depending on your situation and objectives.

We encourage everyone considering home equity release to do their own research, make use of the resources on our website, and speak to Centrelink, friends and family. Our customer care team are specialists in reverse mortgages and can also answer any questions you may have. Please feel free to call us on 1300 889 338 or email us at [email protected].

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Information provided is accurate as at 1st December 2020 and may change from time to time.

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