While your super and the Age Pension go a long way, there may be times you want or need extra money. And you have options, including government schemes and loans—it's just important to understand how they work before making the leap
Before you begin borrowing
When you're no longer earning a regular salary, borrowing money needs careful thought. While loans can help with big expenses or boost your income, they can also have big impacts.
Before looking at your borrowing options, ask yourself:
- Will the repayments work with your current spending?
- What's the real cost to you once you add up interest rates and fees?
- How might this change your plans to leave money to family?
- Can you manage the repayments over the long term?
- Will it change your government benefit entitlements like the Age Pension?
Your borrowing options
There are three main options available to retirees, and they each have differences. Let’s go through them so you can work out which is the best loan for your situation.
The Home Equity Access Scheme is a government program that offers retired homeowners a loan that they can receive as a regular fortnightly or monthly payment, as a lump sum or a combination of the two. It uses the equity in your home as security on the loan, and relies on you repaying the loan, typically when you sell your home or from your estate. To qualify, you need to at least be eligible for the Government Age Pension.
What you get with this scheme:
- Currently, a 3.95% interest rate per year
- Interest that adds up each fortnight
- Protection against owing more than your home is worth
- Your choice of regular payments or a mix of payments and a lump sum
- The ability to repay when you sell your home or from your estate.
What is home equity?
When we talk about home equity, we mean the current market value of your home minus any money you still owe on it. For instance, if your home is worth $500,000 and you have $100,000 left on your mortgage, your home equity awould be $400,000.
A reverse mortgage lets you use the value of your home while you continue living in it. Unlike the government Home Equity Access Scheme, these loans come from banks and other lenders.
What you need to know:
- You need to be at least 60 years old to apply
- You can get your money as a lump sum, regular payments, or access it when needed
- Interest rates are usually higher than standard home loans
- Your loan can't be for more than your home's value (for loans taken after September 2012)
- The amount you owe grows over time as interest builds up.
Some banks offer personal loans specifically for people receiving a pension, and they use your pension or super income to help you qualify. The interest rates and fees can vary quite a bit between different lenders. Your credit history will affect how much you can borrow, and these loans usually need to be paid back more quickly than home equity loans.
Important points about personal loans:
- Your pension needs to cover the regular repayments
- You'll usually need to pay the loan back more quickly than other options
- Interest rates might be higher than other types of loans.
Scroll table horizontally on mobile
| Home Equity Access Scheme | Reverse mortgage | Reverse mortgage | |
|---|---|---|---|
| Provider | Government (Services Australia) | Private lenders (banks, institutions) | Banks and financial institutions |
| Payment | Lump sum or fortnightly payments | Lump sum instalments, or credit line | Lump sum |
| Interest rates | Generally lower, and fixed | Typically higher, fixed or variable | Usually higher than home equity options |
| Eligibility | If you are eligible for the Age Pension | Age (60+) and equity requirements | Based on pension income and credit score |
| Purpose | To supplement your retirement income | To supplement your income or access a lump sum if you need | Often taken out to cover a specific purchase or expense |
| Loan recovery | On sale of property or voluntary | On sale of property | Regular repayments from your income |
| Security | Your home | Your home | Usually unsecured |
| Loan term | No fixed term | No fixed term | Fixed term (typically 1-7 years) |
Impact of a loan on your retirement planning
When you're thinking about borrowing money in retirement, it’s a good idea to think about the bigger financial picture.
- You might have room for repayments in your budget now, have you accounted for costs that are likely to increase, or those unexpected expenses that could crop up?
- Is your current income is stable enough to keep up with repayments over several years?
- How might a loan affect the value you have in your home over time, and what this means if you want to leave money to family?
Some loans can also change your eligibility for government benefits like the Government Age Pension, so it's important to check this before you make any decisions.
Other options to consider
Before you commit to a loan, it's worth looking at other possibilities that might help.
Have a think about whether you could:
- Access and use your super savings
- Sell other investments
- Sell anything that you no longer need – like in a garage sale or online auction
- Make changes to, or create a new budget
- Get help and guidance from a qualified expert.
The government offers various benefits that could help with your financial needs. If you're thinking about selling your home, you might be able to make downsizer contributions to your super, or you could review how your money is currently invested.
For smaller amounts of money, the No Interest Loan Scheme through Good Shepherd could be a good option for essential purchases. These loans don't charge any fees or interest, which might make it easier to manage necessary expenses.
To sum it up
Work out if you can comfortably make repayments with your current spending.
Consider how the loan will affect your home's value over time.
Think about whether alternatives like downsizer contributions and government benefits could be a better option.
Chat to a financial adviser to get personalised advice.
Your next steps
Online, over the phone or in person - we have expert help available. We'll help you save, invest and live the life you want.
More than just a retirement calculator, My Retirement Plannerᵀᴹ estimates how much you’ll need in retirement based on your current situation and future lifestyle goals. Plus, get a step-by-step action plan.
Our retirement guide is a helpful place to start when thinking about your retirement goals. You’ll find:
- answers to common questions about retirement
- stories from other members
- activities to help you plan ahead
- retirement planning checklist.