Equity release is simply the act of withdrawing from the overall equity which has been established in your property. This is calculated by subtracting the amount owing on your mortgage from the value of your home, which increases over time as you pay it down (as well as with increases in property value). There are a number of different ways you can release equity from your home loan, which include the following:
Home loan top-up
A home loan top-up is possible if you’ve grown a suitable amount of equity in your home. You can receive a top-up on your mortgage by applying to your lender and requesting funds to be added to your outstanding balance, after which you can make use of them however you wish (although part of this application process will involve outlining your intended usage to your lender). The major advantage of this type of finance is that it’s inexpensive compared to applying for another loan outright, with fewer fees and an overall smoother process.
Alternatively, many borrowers will take out a line of credit loan, which allows you to borrow against your equity and withdraw funds whenever you like. You’ll only be required to pay interest on the amount you use, also, so you can avoid having to take out a single lump sum and begin repaying it with interest immediately even if you don’t end up using all of it.
Unlike top-up loans, reverse mortgages are restricted to borrowers aged 60 and over, typically those who have paid off their home loan in full. Another area in which these differ from top-ups is how they can be paid to you, as you can receive reverse mortgage payment in the form of a lump sum, consistent income stream, a line of credit or a combination of all three.
You won’t have to make repayments towards your debt, as it accrues by subtracting from your equity, which is then repaid when your home is sold (either by you or your estate when you pass away). In terms of what the maximum equity release is, you can generally access 15% to 20% from the age of 60, with roughly 1% added to each year older than that you are.
Home Equity Access Scheme
A slightly different option when it comes to accessing equity, the federal government’s Home Equity Access Scheme allows eligible borrowers to receive a recurring fortnightly loan payment, which can be used to boost their income already received by the age pension. In terms of what the maximum equity release here is, you can take out up to 150% of the maximum fortnightly pension. This amount is non-taxable and doesn’t come with a required minimum repayment, instead allowing you to pay whenever you like (or when you sell the property). The longer you leave it, though, the more interest and fees will build up.