YOURLifeChoices member Linda is considering releasing some of the equity in her home but is unsure how this may affect her Age Pension.
I was wondering if you could help me with a query concerning getting a loan on our home. We own our home plus we have another home that was left to us by our late son. We will eventually be selling the latter. We are on a full Age Pension and also have an annuity account from which we receive regular, quarterly payments. We want to take out a loan on our home, (one that you don’t have to pay back until the house is sold), but we would like to pay back the interest as we go so it will not accumulate and leave nothing for the kids.
What kind of interest would we be paying if we borrowed $40,000 to $50,0000 and do you think this would have any bearing on our Age Pension? Of course we will notify Centrelink if we go through with this.
A. Many Australians consider using the equity in their home to fund their retirement, or special projects they wish to embark on, but you need to be sure this is indeed the right product for you. An independent financial advisor will be able to give you the right information and advice to help you make an informed decision. You may also wish to read the article from National Information Centre for Retirement Investments (NICRI), When a reverse mortgage is the right choice.
As with any home loan product, interest rates can vary depending on the package and lender you choose. You can get an idea of what your repayments would be, based on various interest rates by visiting Canstar.com.au.
You have to consider the impact any lump sum will have on your Age Pension. If the loan was taken as a lump sum and was spent on an assessable asset, the asset would be counted towards the means test. If the loan proceeds remained unspent and for example were deposited in a bank account, the first $40,000 would not be counted for 90 days while the balance is assessed straight away. This is because bank accounts are assessable. If the proceeds were spent on a non-assessable asset such as the family home or travel then it would not be assessed under the income or assets test. If the loan was progressively drawn down and spent on day-to-day expenses or non-assessable assets then it would also not be counted.