As Australians approach retirement, many find themselves asset-rich but income-poor. The family home often represents a significant portion of their wealth, yet accessing this equity to help fund retirement can be challenging.
A simple, well-designed government program exists to tap into that home equity and help boost retirement incomes. The Home Equity Access Scheme (HEAS) offers a government-backed solution that allows eligible older Australians to supplement their retirement income without having to sell their property.
What is the Home Equity Access Scheme?
Similar to a reverse mortgage with a bank or specialist lender, the federal government’s Home Equity Access Scheme (HEAS) lets older Australians supplement their retirement income through a federal government loan, secured against the equity in their home or other Australian real estate.
How Does the Scheme Work?
Retirees can “top up” any pension payment they receive up to a maximum of 150% of the maximum pension rate. People who do not receive the age pension (self-funded retirees) can also receive up to the same maximum.
Participants can choose to receive fortnightly payments or a lump sum advance.
Compound interest is charged on the loan and accumulates over the life of the loan. This is the key difference from standard mortgage loans: people are not required to make regular repayments or interest payments, although voluntary repayments can be made at any time.
Key Benefits and Features
The interest rate on the scheme is currently 3.95% and has been unchanged since January 2022. This is below the Reserve Bank’s official cash rate of 4.1% and well below commercial reverse mortgages, making it relatively cheap compared with other options.
Importantly, HEAS payments are non-taxable, do not count towards the pension income test, and do not affect the aged care means test. The payments have no impact on age pension payments if the loan is taken as a regular income stream to spend on living expenses.
A “no negative equity guarantee” was introduced, meaning participants will never have to repay more than their home is worth, even if house prices fall. This provides peace of mind as you work towards realising your potential to live your best financial life.
A Practical Example
John and Susan’s Situation: John and Susan are a retired couple who own their home valued at $1.3 million with no mortgage. They have $10,000 in the bank, cars, caravan and contents to the value of $100,000 and $200,000 each in account based pensions drawing a combined pension payment of $770 per fortnight. In addition, they receive a combined part Age Pension of $1,725 per fortnight from Centrelink. To meet their desired income needs during their more “active years” of retirement, and to allow for holidays and hobbies they would like to increase their annual income from $65,000 to $90,000.
HEAS Solution: John and Susan apply for HEAS to supplement their retirement income. As part pension recipients, they can access HEAS payments to top up their income to a maximum of 150% of the full Age Pension rate. They are approved to receive an additional $990 per fortnight through HEAS (the difference between their current part pension and the maximum allowable under HEAS).
The Outcome: Their fortnightly Centrelink income increases from $1,725 to $2,715, resulting in a combined total income of $3,485 per fortnight when account pension payments are included. This provides them with the cashflow needed to maintain their lifestyle and meet their desired holiday and hobby expenses. The HEAS loan is secured against their home and will be repaid from the sale of the property in the future.
This example demonstrates how HEAS can provide practical solutions for those seeking to enhance their cashflow whilst remaining in their family home.
Who is Eligible?
The scheme is open to Australian residents aged 67 or older who own real estate in Australia, regardless of whether they currently receive the Age Pension.
Taking the Next Step
The Home Equity Access Scheme can be an effective way to enhance retirement income, but it’s not a solution that suits everyone.
At Boutique Advisers Private Wealth, our role is to make complex strategies easier to understand, so our clients can gain clarity, feel confident, and make informed decisions about their future.
By speaking with one of our experienced advisers, we can take the time to understand your individual circumstances and help determine what strategies may best support your retirement planning goals.
