How can you best support your family financially?
Learn how accessing your home equity can help you support your family without compromising your well-being in retirement.
This article is sponsored content from our partner, Household Capital.
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Every parent dreams of seeing their children do well in life, and it’s no wonder that the Bank of Mum & Dad is now Australia’s fifth-largest home loan lender.
Key Points
Many ways for retirees to loan money are unsustainable and financially risky.
Giving kids a gift or loan can affect a retiree’s taxes or Age Pension.
A good solution is to draw on their home equity, which allows them to support their family without hindering their retirement lifestyle.
The most common resource retirees lean on to loan money is their retirement savings. These may include their super and any investments they can draw on. However, putting your long-term retirement funding at risk is an unsustainable way to fund a loan from the Bank of Mum & Dad.
Other ways can put you at personal financial risk. Being a mortgage co-borrower means you’re on the hook for mortgage repayments if your child misses them.
Similarly, joint ownership, a home bought by already home-owning retirees, would likely affect pension entitlements. If circumstances mean your child cannot meet the repayments, you may have to tap your retirement funding.
Other retirees prefer to act as a guarantor and put up their family home as collateral. Being a guarantor on a mortgage constrains your ability to borrow and puts your property at risk if your child defaults.
Many retirees wonder if supporting their family will affect their taxes or Age Pension. While we can provide some broad information, you should always speak to your accountant and Centrelink to ensure your actions don’t have unintended consequences.
If it’s a gift, and you receive the Age Pension, then you must declare it to Centrelink. There is a gifting limit of $10,000 per financial year or $30,000 across five years. Exceed those limits, and your gift may affect your assets test and pension entitlements.
Loans may also affect your entitlements and may be treated by Centrelink the same as any other investment: with a deemed rate of return. Plus, the impact of your loan on your pension entitlements will last for the period the loan is outstanding.
Whether it’s a gift or a loan, document the terms of the deal clearly.
Any intergenerational wealth transfer must be responsible; you must ensure your needs are met before assisting your loved ones.
If you’re going to be the Bank of Mum and Dad, you will need a long-term strategy that helps your children without sacrificing your well-being in retirement. Using your home equity might be the key.
Using a Household Loan, you can access part of the equity built up in your home to boost your retirement funding and become Bank of Mum and Dad, as Richard did:
Speak to a Household Capital retirement specialist by calling 1300 760 139
Check out Household Capital’s online calculator to see how much you could access.
Applications for credit are subject to eligibility and lending criteria. Fees and charges are payable, and terms and conditions apply (available upon request). Household Capital Pty Limited is a credit representative (512757) of Mortgage Direct Pty Limited ACN 075 721 434, Australian Credit Licence 391876.
