What Is A Home Reversion Scheme?
A home reversion scheme in Australia is not a loan, nor offered by Household Capital. It’s a contract for the part sale of your home.
Instead of borrowing against the value of your home, you agree to sell a share of the future sale proceeds of your home in exchange for a lump sum payment now.
This means you sell a portion of your home equity at a significant discount to its current value and receive a lump sum payment. The discount applied is age-based, and decreases with age.
When the house is sold, the home reversion scheme provider receives the value of the proportion of equity it purchased, at the future price.
How Much Home Equity Can You Borrow?
Whether you need to consolidate debts, increase income or peace of mind see how a Household Loan can help you.
Is a home reversion scheme a type of reverse mortgage?
A home reversion scheme is quite different from a reverse mortgage; rather than being structured as a loan, it's a contract for the partial sale of your home. As such, you don't need to repay it, however the payment you receive for the portion of the home sold is generally significantly lower than the market value.
What are the benefits of home reversion schemes?
The benefits of a home reversion scheme include:
What are the downsides of home reversion schemes?
As well as having upsides, home reversion schemes also have a number of downsides, including:
It's important to understand how different mechanisms used to access the value in your home can affect both your long term retirement funding and home equity over time.
What is the difference between a home reversion and a household loan?
Using a Household Loan, which is a type of reverse mortgage, you can access a portion of the equity built up in your home to boost your long term retirement funding. You retain full ownership of your home and enjoy a range of consumer protections. A Household Loan can provide capital or income, or a mix of the two.
Importantly, home reversion schemes have limited availability; they are generally unavailable outside major cities in certain states and may not be available on homes that are not freestanding. While a Household Loans is subject to some restrictions, it is generally more widely available to retired homeowners.
Helping The Family Get Started
Rob and Sue live in North Fitzroy (Victoria) and are in their early 70s. They’re both active and still engaged with work that they love, bringing in some additional income to support their superannuation savings. They have one adult child, Peter, who has recently married and become a father.
Rob and Sue were introduced to us through their financial adviser, Mary, who had previously helped them with a financial plan earlier in their ‘retirement’.
Rob and Sue had an existing reverse mortgage from some years ago. Their objectives for their Household Loan were threefold; to refinance their existing reverse mortgage at a lower interest rate, undertake some small renovations to their home and importantly, provide financial support to Peter and his new family.
Their home is valued at over $2 million and they have significant wealth available to meet their retirement needs.
Refinancing their existing reverse mortgage at a lower interest rate was important to Rob and Sue, as it preserves future equity in their home. The residual equity can be used to provide options in later retirement; downsizing to a smaller home, providing for aged care needs such as in-home support, or as a bequest to Peter if they choose to stay in their home.
However, Peter and his new family needed immediate financial assistance to buy their first home. Rob and Sue gave Peter $120,000 which together with his own savings, made a significant contribution towards his first home and gave Rob and Sue a strong feeling of satisfaction at being able to play the important role of Bank of Mum and Dad.
Note: customer names and images have been changed to protect their privacy.