Opinion
Can I use this government scheme to help my kids buy a house?
Paul Benson
Money contributorMy daughter is in her early 30s and my sole beneficiary. She is renting in regional NSW and I would really like to assist her with a home purchase, but want to be able to fund my retirement comfortably as well. I own my apartment and am 71.
Under the Home Equity Scheme, could I borrow against my home to provide a deposit for my daughter, without risking my home?
Unlocking some of the equity in your home can be a way to help your children into the housing market.Credit: Simon Letch
A great idea if affordable. Your daughter will receive an inheritance one day – it will be much more useful and impactful now than in 20-odd years.
The federal government’s Home Equity Access Scheme can be a great way for older Australians to access the equity in their home and remain in their community as they get older. The primary qualification criteria are that you are of pension age and own real estate in Australia.
The amount you draw down through this scheme accrues as a debt. You have no obligation to make repayments. When your home is sold, either because you go into aged care or pass away, the debt is repaid from the sale proceeds. Interest is levied on the debt.
Currently, that rate is 3.95 per cent, so certainly not exorbitant. There are limits to the maximum that can be borrowed based on the value of your home. In the unlikely event that the debt was greater than the value of your home at the point of sale, your estate is not required to repay the shortfall.
The other thing that is important to consider is that you would not be leaving yourself short were you to need aged care in later life.
Most commonly, people use the scheme to draw additional income via a fortnightly payment, which can be up to 150 per cent of the age pension.
But it’s also possible to do lump sum drawings, which is what is called for here to assist your daughter. These lump sums are considered advanced payments and are capped at 50 per cent of the maximum annual rate of age pension.
In your case, this would equate to $14,511 – not nearly enough for a deposit for your daughter, though it might be a useful top-up if she has some money already saved. It is possible to do these twice per year, though I’m not sure whether that is particularly helpful in your scenario.
Perhaps an alternative would be to help your daughter via a lump sum withdrawal from your superannuation, and use the Home Equity Access Scheme to replace the income that the super would have otherwise provided.
There are private operators that provide reverse mortgages that allow for lump sums. To my knowledge, none of the big banks offer these products any longer, and I’m not familiar with the pros and cons of the facilities now available.
One thing I would be cautious of are schemes where you sell a portion of your home rather than take out a traditional reverse mortgage.
With any of these solutions, it is crucial you understand the fine details. Have your solicitor review the documents and ensure you are crystal clear as to how the facility would play out in the long term.
Given your daughter would presumably be handling your estate one day, it might be worthwhile to have her attend these meetings too, so there’s no surprise or confusion at that point.
The other thing that is important to consider when contemplating this early inheritance gift is that you would not be leaving yourself short were you to need aged care in later life.
Paul Benson is a Certified Financial Planner at Guidance Financial Services. He hosts the podcast Financial Autonomy. Questions to: paul@financialautonomy.com.au
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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