Is drawing on home equity in times such as these a more sensible option?
Australians over 60 facing funding shortfalls or wishing to help family members get through a difficult time can now apply for a new product to draw on their home equity.
Independent retirement funding provider Household Capital has overhauled its home equity product and added an accelerated application process to meet the needs of older Australians during the COVID-19 pandemic
This includes a ‘rapid access contingency’ $20,000 home equity offer.
“We know retirees are doing it tough and facing reduced incomes due to shrinking super balances and investments,” said Household Capital chief executive Josh Funder.
“The government stimulus package focused on working Australians and while the banks have provided interest repayment holidays, none of that has helped retired Australians get through the crisis.
“Stepping up to offer $20,000 to cover living expenses or help out kids or grandkids who have lost jobs in the pandemic is the right thing to do, at the right time.”
The new ‘$20k Top Up’ is an alternative to having to utilise the government’s early access to super scheme – and the losses that will inevitably incur.
Mr Funder said the rapid funding might also provide a financial boost for retirees facing a loss of income due to falling dividends, term deposit rates and rental income.
In addition to the ‘Top Up’ lump sum payment, the company has also announced accelerated access ‘Home Income’ – a regular drawdown on home equity that allows retirees to maintain their retirement lifestyles.
“Australian retirees need access to both capital and income. These solutions will help them get it right now and in the long term,” Mr Funder told YourLifeChoices.
“The Top Up might help retirees fix up their home for lockdown, offer support to a family member in need or help funding a health emergency. Home Income can provide them with security and support in the case of losses in retirement income they’d usually be getting from rental payments, dividends or share-market income.”
As a general rule, said Mr Funder, when accessing the Home Income solution, customers could remove three ‘zeroes’ from the total value of their home, take that as a monthly payment, and still have significant equity in their home to facilitate future retirement funding.
“If your home is worth $1 million, most customers could draw down $1000 a month and have plenty left to fund the rest of your retirement needs” he said.
According to Household Capital, regular interest repayments are not required, and while the loan must be repaid when the customer leaves their home, applicants can repay the loan at any time without financial penalty.
“The big banks have abandoned retirees,” said Mr Funder.
“All Household Capital products ensure customers have a retirement-specific financial solution for the long term and they also offer guaranteed occupancy.”
Payments will be fast tracked and, typically, made available within two weeks, comparing favourably with the potential nine-month wait times on the federal government’s Pension Loans Scheme.
“We don’t want people to have to wait – they need access to their savings to meet their current needs as well as fund their long-term retirement,” said Mr Funder.
“Smaller loans like these are not profitable to originate in a business sense, but we view it as a service to make sure Australian retirees have access to their savings when they really need them.”
Most Australian retirees today have much more saved in their homes than in their super or investments. According to Household Capital, drawing on home equity in times such as these can be a sensible option.
“It’s becoming clear to retired Australians that their homes are both the best place to live as well as the best way to fund their retirement,” said Mr Funder.
Would you consider accessing the equity in your home instead of crystallising losses in your super? If not, what is preventing you from doing so?
Household Capital is a YourLifeChoices preferred partner.
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Financial disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.