Pros and cons of equity release

Benefits of Equity Release

Access increased funds for any purpose.

Live in your home for as long as you choose.

Remain debt free with no capitalising interest.

Provide a means to pay down debt.

Remain the legal owner of your home.

Rent your home out and retain the rent.

Buy the sold share back at any time.

Move into aged care without having to sell your entire home.

Benefit from any capital growth on your portion of the home.

You can choose to sell your house at any time.

Things to be aware of

Equity in your home is reduced.

Home reversion products purchase your home equity at a discounted rate (less than market value).

Fractional property transactions require you to pay rent on the portion of your home sold. This rent is not paid out of your pocket but through the sale of further equity at the commencement and then every five years – reducing equity even more over time or potentially exhausting it.

At the contracted event date (every five years), if there is not a market of buyers, there will be no sale of additional equity. This will result in the partial owners not receiving a rental yield on their part ownership of your home but is not a default event to you.

You need to seek independent financial advice before entering into a fractional property transaction.

You need to seek independent legal representation before entering into a home reversion contract.

Equity release products can be difficult to understand.

There are few products (currently only two in Australia).

Home reversion is limited to Melbourne and Sydney while fractional property transactions are Australia-wide.

You don’t know what the actual cost of the equity release product / scheme is.

Your circumstances and financial views might change as you age; if you use too much money now, you may not have enough later.

Accessing your home equity may affect your eligibility for the Age Pension and other Centrelink benefits.

For more information on home reversion, please go to ASIC’s MoneySmart website.

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