Pension Loan Scheme

People of Age Pension age (or their partners) who are not eligible to receive a pension because of either their income or assets 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 payment to the amount of the full pension with the difference being the loan. Interest is charged on the loan and a mortgage is taken out over the property by Centrelink or the Department of Veterans Affairs.

Further information on this facility can be obtained from Centrelink or by searching on their website, www.centrelink.gov.au.

Shared Equity Schemes/Home Reversion Schemes

Can also be known as 'Debt Free Equity Release'.  Applicants can enter into a part-sale transaction and receive a lump sum cash payment in exchange for a share of the property's future value.  The facility is only available in certain locations and accessible by homeowners with eligible property types.

Applicants can receive between $25,000 and $500,000, which is determined by their age and the current value of the property.  The amount the applicants receive is less than the face value of the share being sold because the applicants retain all ownership rights and the right to live in the home for the rest of their lives.

For example, Jack & Jill, both aged 60 years of age, need $50,000.  Their home is valued at %500,00.  The provider may agree to purchase up to a maximum of 27% of the future value of their home for $50,000 (10% of the present value) paid now.  Rebates may apply for early sale or for sale in excess of the anticipated value, meaning Jack & Jill could get more than the minimum 73% they originally wanted to retain.

Because the transaction is a part-sale there is no debt, and a non-monies mortgage is registered on title until final settlement takes place.  The homeownerretains all legal ownership rights and remains the owner on title, and there are no maintenance requirements or need for regular revaluations of the property.

As opposed to other forms of equity release, risks associated with property values and longevity are borne by the provider and not by the homeowner.

 

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, agents fees, marketing and relocation costs.

Accommodation Bond Loans have been designed to enable consumers to access some of the equity locked up in the family home for the purpose of meeting the cost of an accommodation bond to enter an aged care home.  As an alternative to selling the family home, some providers will lend up to 50% of the agreed value of the property over a three year term or up to 40% of the agreed value of the property over a five year term.  The minimum loan amount can vary from $50,000 up to $100,000.  The maximum loan amount is currently $500,000.  Interest rates are variable and are approximately 1% higher than standard variable home loans.  Fees may be charged for valuing your property, setting up and managing the loan and for legal expenses.  There may also be a fee for discharging the loan and for early repayment.

You should ensure that you read all material relating to a proposed loan, including the mortgage documents and ensure that you obtain both legal and financial advice before proceeding with any loan.

There may be postcode and other restrictions, for example, loans may not be available for retirement villages, or transportable homes.  Family members or tenants may live in your home and/or you may rent out the property.  Any rental income may be exempt under the income test for Government Income Support assessment if used to cover aged care accommodation costs via periodical payments.  The loan is repayable at the end of the loan term, or sooner if you die, move back home or sell the property.  There are no scheduled repayments until the end of the loan term.

Taking out an Accommodation Bond loan has no effect on your Government Income Support payments as accommodation bonds or loans are not assessed.