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Jansen Walsh & Grace

You may apply for equity release for a number of reasons: to take a trip, buy a new car, make home improvements or adapt their home to suit their changing needs. You may need to repay a mortgage – eg, an interest only mortgage and another principal and interest mortgage is not an option.

Equity release can also be used to finance transactions such as: purchase of a new property, making home adaptations to meet specific needs, repayment of debts, payment to an ex-spouse or ex-partner, family member, freehold purchase or gifts to your children or grandchildren for their house deposits. The release of equity release funds can usually be timed to coincide with completion of these transactions.

The rise in popularity of equity release products is driven by wider social factors such as:
  • people are living longer;
  • people are working longer;
  • pension ages are increasing.

Types of equity release products
Today’s equity release landscape is a consumer’s market with lots of choice and competition. Types of equity release plans include:

Home Reversion Plan or Wealth Release
  • you sell a fixed share of your property (usually between 30%-100%) to the provider;
  • the provider pays you a percentage of that share tax free;
  • no interest is added;
  • the provider receives its share of your property on its sale.

Lifetime Mortgage or Reverse Mortgage
  • multiple methods including roll-up and serviceable plans;
  • you extract funds in a single lump sum or in smaller amounts over time up to the maximum limit agreed with the provider;
  • you can choose to pay interest and/or pay some capital.
The Commonwealth Bank of Australia, which was a leading provider, has announced that it will pull out of the market on 1 January 2019 and no longer off that facility from that date (though it will continue with existing loans).  Bankwest is also pulling out of the market.  Heartland (a New Zealand bank) and Homesafe Solutions (a division of the Bendigo and Adelaide Bank) remain he market.

Money can now be paid in two ways:
  • as a single tax free lump sum; or
  • be withdrawn from a cash reserve as and when needed.

In advising you, we seek to ensure that the product you select provides you with the following safeguards:
  • tenure for life;
  • freedom to move to a suitable property;
  • no negative equity guarantee;
  • Centrelink rules.

Pension Loans scheme

The federal government now offers a voluntary non-taxable fortnightly loan under the Pension Loans Scheme to help in this situatuin.

Risky schemes
ASIC has expressed concern about some products.  You should be wary of some schemes.  About 10 years ago, many retirees sold their homes to Money For Living at a reduced price in exchange for tenancy, life-long monthly payments and a guarantee that costs such as rates and insurance would be paid.  It was prompted by slick television commercials.  Money For Living on-sold their homes and went into administration.

If you are receiving a Centrelink pension, you should check with Centrelink whether it will affect your pension.