What’s the difference between the Home Equity Access Scheme and a Household Loan?
We compare two different ways of accessing the equity you have in your home.
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Thanks to their fulfilment of the “Great Australian Dream” of home ownership, many seniors find themselves in a position where they are “asset rich” but “cash poor”.
Put simply, that means you are sitting on a valuable asset, but your money is tied up in that asset and you may have difficulty meeting unforeseen expenses.
Your home is worth a lot of money — if you sell it. However, unless you have a good reason for doing so (such as downsizing), that may not be your preferred option.
This is where you could consider a home equity loan.
Put simply, home equity is the value of your financial interest in your abode less any debt. For retirees who no longer have a mortgage, this is 100%.
With the rising cost of living putting more pressure on older Australians, your home equity can be used to support your lifestyle by topping up your superannuation, enhancing retirement income, improving your home or funding in-home or residential aged care.
It can also support intergenerational wealth transfer, by funding your children’s or grandchildren’s first home buyer deposits or educational expenses.
Advantages of home equity loans include:
They often have lower interest rates than other comparable loans, such as personal loans or credit cards. This is because home equity loans are secured by the value of your home, which makes them less risky for lenders.
They can be flexible, so you can use the funds in one or more ways that best suits your needs.
They may provide access to a larger sum of money than other types of loans, as the amount you can borrow is based on your age and the value of your home.
Making regular payments on your home equity loan could potentially improve your credit score, as it demonstrates responsible borrowing and repayment habits.
If you go down this path, your options include:
A Household Loan offered by Household Capital.
The federal government’s Home Equity Access Scheme (HEAS).
HEAS is a voluntary scheme for older Australians under which you can apply for non-taxable loan payments by using your property as security.
Its features include:
It pays fortnightly, just like the Age Pension.
Your loan is secured against your property and increases by your payment plus interest each fortnight.
Regular repayments are not required. You only have to pay out the loan when you move or sell.
Both age pensioners and self-funded retirees can apply.
To apply, you must meet Centrelink’s Australian residency requirements, be at least of Age Pension age of 67 and be a home owner.
HEAS is administered by Services Australia and you can apply online through your MyGov account or a Centrelink online account.
If you need help with your application, Pension Boost can help you avoid the challenge of dealing with Centrelink or DVA and manage the application process on your behalf.
Related reading: National Seniors Australia, Department of Veterans’ Affairs, Pension Boost
Household Capital’s Household Loan enables you to unlock the savings in your home. It allows you to responsibly access a portion of your home’s value to meet your long-term retirement needs.
A Household Loan is more flexible than the HEAS, allowing you to potentially access a larger amount of equity for a variety of purposes, including:
Boosting your regular income to keep up with the rising cost of living.
Covering medical or dental expenses.
Renovating or modifying your home.
Buying a new car.
Establishing a contingency fund for unexpected expenses.
Topping-up superannuation or other investments.
Helping your kids get on the property ladder.
Contributing towards your grandchildren’s education.
Regular repayments are not required, freeing up your retirement income for important things. The loan is paid once you move and/or sell the home. If you pass away, your estate has 12 months to sell the property.
Related reading: Household Capital
National Seniors and Household Capital have a free e-guide that explains how you can use your home equity to create a better retirement.
All insights and information provided should be considered general advice for educational purposes only. As we are unaware of your personal circumstances, the information in this article should not be misconstrued as personalised financial advice. We recommend seeking advice from a qualified financial professional before making any major financial decisions.
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 ACN 618 068 214, Australian Credit Licence 545906, is the Servicer for the credit provider Household Capital Services Pty Limited ACN 625 860 764.
