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Accessing the Equity in your Home
Equity Release Products - Accessing the Equity in your home.
If you are an older person you may own your home but you do not have enough cash to meet your needs. You probably can't take out an ordinary loan because you are unable to repay the loan. Equity release products (sometimes called "reverse mortgages" or "home equity loans") may be a way around these problems because they allow you to borrow against the value of your home while you still live there.
These products need very careful consideration and you need to be aware of the consequences of the terms of the mortgage. For example:
- The interest is added to the loan amount and can build up over time "eating" into the equity of your home;
- There could also be terms called "default provisions" which can allow the bank in certain circumstances to demand the immediate payment of the full loan amount plus interest. This could cause you to loose your home;
- You may be left with insufficient funds to enter into an aged care facility, if necessary;
- Any dependents who live with you may be left without a home to live in after you have passed away.
- The bank rather than your children may become the beneficiary of your estate.
It is essential that you obtain independent legal advice prior to entering into one of these agreements.
The use you make of the loan proceeds received from a reverse mortgage can also impact on the amount of age pension you receive. You should speak with a Financial Information Service Officer at Centrelink on 13 23 00 about these matters prior to signing any documents.
FIDO - Australian Securities and Investment Commission - financial tips and safety checks: 1300 300 630, www.fido.gov.au: "About financial products - equity release".
NICRI - National Information Centre on Retirement Investments: (02) 6281 5744,
1800 020 110: www.nicri.org.au: "Accessing the Equity in Your Home Some".
Granny Flats
Granny flats
is a term given to arrangements where you, an older person, agree to live with your child on the same property. You make a financial contribution to a property in exchange for the right to live on the property.
This financial contribution might involve a payment for the construction of a separate self contained flat on the property or payment for renovations to an existing house such as the construction of a downstairs or upstairs area in a separate part of the house. The financial contribution might also be a payment towards the purchase of a house on the understanding you will have the right to live there for the rest of your life with your children. There may also be an agreement that your child will provide you with physical care and support for the rest of your life.
Problems can arise with these arrangements if you have not considered what would happen if your circumstances change or if there is a dispute as to what you and your family have agreed. There are some things you can do to ensure that if things do not work out your legal interest in the property is protected.
5 Tips
- 1. Get a formal agreement in writing
- 2. Get independent Legal Advice
- 3. Hope for the best but plan for the worst
- 4. Think about your pension
- 5. Get Legal Advice as soon as things go wrong.
