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Assessing Home Equity Conversion Loans
Last amended: 11 November 2008
How long home equity conversion loan is a disregarded asset?
Example of a loan spent within ninety days
A person gets a home equity conversion loan of $40,000. They spend the loan in forty five days. The loan is disregarded for the full forty five days.
Example of a loan not spent within ninety days
A person gets a home equity conversion loan of $70,000. They do not spend the loan within ninety days. Therefore:
- $40,000 is disregarded for ninety days.
- $30,000 is assessable immediately.
After ninety days the total loan amount is assessable under the assets test.
Lines of credit
Where the lending institution provides home equity conversion loans through a line of credit, the ninety day assets test exemption applies to the first $40,000 only and a subsequent drawing down on the line of credit does not receive a further ninety day exemption.
eg. a home equity loan provides for an initial lump sum amount of $40,000 to be used within ninety days, with further funds then accessible through an approved line of credit. The further funds accessed do not receive a ninety day exemption.
According to section 5H(1) of the VEA a home equity conversion agreement, in relation to a person, means an agreement under which the repayment of an amount paid to or on behalf of the person, or the person's partner, is secured by a mortgage of the principal home of the person or the person's partner.
An asset means any property, including property outside Australia.