A new home equity release offering has been introduced to the market with the specific aim of helping individuals fund their retirement.
Specialist funding provider Household Capital launched the product in March, called the Household Loan, as a solution for individuals who did not have adequate savings to fund their retirement.
“Our mission is to help Australians live well at home. It’s a non-financial mission. It’s about giving Australian retirees confidence in their long-term plans for retirement, trust in their own savings and recognising their needs are valid and can often be met through their own savings,” Household Capital chief executive Joshua Funder said.
The Household Loan is an equity release offering designed purely for individuals aged 60 and above who own and live in their home. The loan range is between $50,000 and $550,000 and can be drawn down over 12 months.
The loan-to-value ratio (LVR) is applied using a sliding scale based on age, with a maximum LVR of 15 per cent for 60 year olds and a maximum LVR of 45 per cent for customers who are 90 years of age or more. This ratio increases by 1 per cent for each year of age and a facility for a couple will be based upon the youngest associated age.
Under the loan agreement, borrowers are guaranteed occupancy of their home, retain ownership and are guaranteed liability for the loan will not exceed the value of the home. Further, clients can limit the liability of the loan to exclude part of the home value. In addition, the loan can be repaid anytime without penalty.
Interest is charged at 5.9 per cent annually as a variable rate and a 1.5 per cent establishment fee applies.
Household Capital has stipulated the product is for long-term retirement planning and to this end it has specified strategies suitable for the use of the Household Loan, including topping up a superannuation investment portfolio and the funding of aged-care needs.
As such, Funder pointed out financial advice is critical to ensure the proper use of the facility.
“We want the product to be broadly available to meet a range of retirement needs whether it be for super or into a RAD (refundable accommodation deposit) or anything in between,” he noted.
“Advice and long-term planning are absolutely key to make sure it’s responsible and we’re proud to do it, but it also works for the customer over the long term.
“Long-term planning is usually done by financial advisers and other professionals who are licensed to provide that sort of financial advice.”