How can the equity in my home fund my retirement?

Answer

We all want a comfortable retirement and here we look at how the equity in your home may be able to help improve your retirement lifestyle.

 

For many Australians the investment in the family home is the biggest asset, even bigger than super. You may have worked hard and built-up significant equity or value in your home throughout your working life.

If this sounds like you, it may be worthwhile setting up a financial plan that lets you use the equity in your home to improve your retirement lifestyle. Of course you’ll need to consider the risks involved and a financial adviser can help you do that.

Downsizing your home

The most obvious way to use the equity or value in your home is to sell your home. Downsizing—you could even call it rightsizing—to a less expensive property may provide you with a place that suits you better and leave extra money for you to invest for income. Any extra money may impact your Centrelink benefits so make sure you explore all of the implications first.

You also need to be aware that when considering downsizing, a different house may not actually cost less. A smaller house closer to transport or amenities may cost as much as a larger home further away so you’ll need to do some research before selling.

You may not want to leave your family home. But depending on what you want to do, keeping your home and changing the way you use it can work too.

Renting out part of your home

Renting out part of your home can allow you to stay at home, provide extra income and you might even enjoy the company of a tenant. This could work well if your tenant is a friend or family member.

If you’d like more privacy you might consider investing in your property and converting it to a dual occupancy dwelling.

This may increase the value and equity in your property―as well as providing you with extra income. You’ll need to do your sums to make sure you can get a return on any money you invest. And be aware that any extra income from renting out your property can impact your Centrelink benefits so look into that first.

Reverse mortgage

You may want to continue living in the family home and don’t want a tenant. You can still access the equity in your home using a reverse mortgage. It’s generally a last resort option due to the costs involved but it can allow you to access money from your home and continuing living in it.

A reverse mortgage provides a way for you to borrow against the value of your home and then use the money to supplement your retirement. You can choose a lump sum, regular income stream, line of credit or combination of options.

Unlike a normal loan you don’t have to repay a reverse mortgage with regular repayments. The interest on the loan compounds over time and typically—once you sell your home or die—the loan must be repaid in full, including interest and fees.

But a reverse mortgage does have risks—it can impact not only your financial plans but your relationships too so it’s important to do your homework. Let’s look at some of the risks in a little more detail:

  • the interest rates are high; generally higher than average home loans
  • the pace the debt rises can be surprisingly fast—possibly leaving you with less for future needs such as aged care
  • the payments you receive may impact your Centrelink benefits and at the end of the day you may not have many assets remaining to leave those you love.

Of course a reverse mortgage may be the right option for you but it’s important you know all the risks before considering it.

When it comes to planning for the years ahead it’s essential to have a plan that’s designed around your goals and your circumstances.

Our home and retirement planner is a great tool for exploring your own financial position and how your property fits in. Of course getting the right advice is also important so speak with your financial adviser and make the most of the opportunities and years ahead.

 

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Important information

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It’s important to consider your particular circumstances and read the relevant Product Disclosure Statement or Terms and Conditions before deciding what’s right for you. This information hasn’t taken your circumstances into account.

This information is provided by AMP Life Limited. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you. All information on this website is subject to change without notice.