What is the Home Equity Access Scheme?

If you're approaching or already in retirement and own your own home, you might have heard about the Home Equity Access Scheme (HEAS). This government program allows eligible older Australians to access the equity in their home through a voluntary non-taxable loan, providing additional income to support your retirement lifestyle.

HEAS can provide valuable financial flexibility during retirement, but like all tools and resources you may leverage, it is important to understand the full impact of any programs and how they impact your overall financial goals and strategy. Let me walk you through what it is, how it works, and whether it might be right for you.

Understanding the Home Equity Access Scheme

The Home Equity Access Scheme is an Australian Government program that allows you to access the equity in your home, providing a flexible and secure way to supplement your retirement income. Think of it as a government-backed reverse mortgage that allows you to convert some of your home's value into regular income while continuing to live in your property.

The scheme is voluntary, and you can choose to receive fortnightly payments to top up your regular income, or lump sum advances to cover unexpected expenses (or both). What makes this particularly attractive is that the payments are non-taxable and don't count towards the pension income test or affect the aged care means test.

Who is Eligible?

To be eligible for the HEAS, you must meet several specific criteria:

• Be of Age Pension age (currently 67), or partnered to a person of Age Pension age

• Have suitable Australian real estate with appropriate insurance to use as security for the loan

• Not be bankrupt or subject to a personal insolvency agreement

  
  

Quick Tip: The real estate you use as security doesn't have to be your family home. It can be an investment property, commercial property, or even vacant land, as long as it's located in Australia and you have your name on the title.

How Much Can You Access?

The loan payments you can receive depend on whether you already get a pension payment:

Fortnightly Payments: You can receive a fortnightly loan payment of up to 150% of the maximum Age Pension rate, less any pension payment you already receive. For example, if you're receiving the full Age Pension, you can get an additional 50% of the fortnightly pension rate as a loan.

Advance Payments: You can receive up to two advance payments in any 26-fortnight period, to a combined total of 50% of the annual Age Pension rate. This provides immediate access to funds when needed for unexpected expenses.

The maximum loan amount you can borrow through the scheme depends on several factors:

• The value and equity in your property

• Your age (and your partner's age if you're a couple)

• How much of your property's value you choose to offer as security

  
  

Quick Tip: If you don't receive a pension, you can still get a fortnightly loan payment up to the full 150% of the maximum rate of your qualifying pension, which would be the Age Pension if you're of qualifying age.

Understanding the Costs

The loan attracts compound interest, with the current rate available on the Services Australia website. While this interest rate is generally competitive compared to commercial reverse mortgages, it's important to understand that the debt will grow over time as interest compounds.

Additional Costs: There are costs to start and exit the loan, which depend on your individual circumstances and the type of property being used as security. You can pay these costs at the time you apply, or add them to your loan balance. You won't need to pay for the property valuation as part of the application process.

Legal Requirements: The Commonwealth will place a charge or caveat on the title deed to your property, and you must pay costs to register and remove these charges or caveats.

No Negative Equity Guarantee: This is one of the most important protections in the scheme. The No Negative Equity Guarantee ensures that you, or your estate, will never owe more than the value of the equity in the property used to secure the loan. This means you cannot end up owing more than your property is worth.

Key Benefits of the HEAS

Financial Flexibility: You can choose to withdraw a smaller amount, can stop or start payments at any time, and can pay back the loan at any time.

Tax Advantages: Home Equity Access Scheme payments do not count towards the pension income test or affect the aged care means test. Amounts received are also non-taxable.

Stay in Your Home: You can continue living in your property while accessing its equity.

Government Security: The loan is backed by the Australian Government, providing security and peace of mind.

Flexible Repayment: Voluntary repayments can be made at any time, but are not required. Any outstanding loan amount plus interest is typically payable out of your estate or when you sell the securing property.

However, you can transfer your scheme loan to a new property if you wish, subject to continuing to meet eligibility criteria.

Important Considerations

While the HEAS can be an excellent tool for boosting retirement income, it's not suitable for everyone. Here are some key factors to consider:

Impact on Estate: The loan will need to be repaid, typically when you sell your home or from your estate. This will reduce the inheritance you can leave to your beneficiaries.

Compound Interest: Interest is calculated regularly on the amount you've been paid to date, meaning your debt will grow over time.

Property Requirements: The property must be owned by you (and/or your partner), with your name generally on the title. If owned through a company or trust, additional guarantees and stakeholder requirements apply. You must maintain adequate insurance coverage.

Legal Obligations: A charge or caveat will be placed on your property title, and you'll be responsible for associated registration and removal costs.

Future Flexibility: While you can repay the loan early and make voluntary repayments at any time, you should consider your long-term financial needs and whether you might need access to your home's equity in other ways.

Is the HEAS Right for You?

The HEAS can be particularly beneficial if you:

• Want to supplement your retirement income without selling your home

• Have significant equity in your property but limited liquid assets

• Are comfortable with a growing debt secured against your home

• Want the flexibility to start and stop payments as needed

  
  

However, the Department of Social Services recommends you should consider getting independent financial advice before applying and may want to speak to a Services Australia Financial Information Service Officer.

Getting Started

If you think the HEAS might be suitable for your situation, you can find more information and apply through the Services Australia website at servicesaustralia.gov.au, or contact Services Australia on 13 23 00.

Before applying, I recommend:

1. Using the online calculators available through Services Australia to estimate your potential borrowing capacity

2. Discussing the implications with your family, particularly regarding the impact on your estate

3. Seeking independent financial advice to understand how it fits with your overall retirement strategy

4. Considering how it might affect any future aged care needs

5. Understanding all costs involved, including setup and exit costs

   
   

Quick Tip: The HEAS calculators available through Services Australia can provide personalised estimates based on your specific circumstances, helping you make an informed decision about both fortnightly payments and advance payment options.

Final Thoughts

The Home Equity Access Scheme represents a valuable option for many retirees looking to enhance their financial security. While it's not right for everyone, it can provide the additional income needed to maintain your lifestyle and cover unexpected expenses during retirement.

Remember, every person's financial situation is unique. What works for one retiree may not be suitable for another. That's why professional advice tailored to your specific circumstances is so important when making decisions about accessing your home's equity.

Bill Savellis

Senior Financial Adviser

Having navigated the Aged Care landscape for both of his parents, Bill understands how challenging it can be to make the right decisions for your future care needs. That's why he believes that everyone should have access to financial advice during this time. Bill has been a Financial Adviser for over 22 years, and is passionate about helping others access the financial advice they need. Drawing from his own experience in the financial sector, Bill develops strategic, personalised plans to support transitions to Aged Care or Home Care.

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Disclaimer: Prepared without taking into account your objectives, financial situation or needs. Before acting on any information in this article, Olive Grove Financial Advice recommends that you consider whether it is appropriate for your circumstances. Information in this article was correct and current as of 8 October 2024. Olive Grove Financial Advice is operated by Bill Savellis through The Financial Advisor (Australia) Pty Ltd ABN 72 619 546 431, who is a Corporate Authorised Representative (No. 1278394) of Havana Financial Services Pty Ltd.