A user’s guide to HEAS:
Is this the income top up you need?
Using home equity as a retirement income seems to be the last well kept secret. But that, too, is changing as more industry commentators scrutinise the home wealth access products on the market and conclude that they do have their place in retirement funding. This is why home equity became quite a talking point a few weeks ago, after the Actuaries Institute pressed for stronger encouragement for such loans. You may recall our coverage of this report, which drew lots of robust debate in our comments section.
The comments tended to fall into one of three camps:
- I will never, never, never do this,
- I might do this, under certain circumstances, or
- Why not? I’m prepared to take a look.
Today we focus on the government’s Home Equity Access Scheme (HEAS) as it is this form of home equity access that is showing the most rapid uptake. The other two main types of equity access are:
- Reverse mortgages which are offered by a range of private lenders. The loan is repaid when the property is sold or when the borrower passes away.
OR
- Home reversion schemes again offered by private lenders, where a portion of the equity in the home is either sold for a lump sum (or regular payments). The lender has an agreement for a share in the future sale of the property.
What is the Home Equity Access Scheme?
First known as the Pension Loan Scheme, this loan was introduced by the Hawke government in 1985 for Age Pensioners only. It had negligible uptake for the next few decades and was then renamed the Home Equity Access Scheme by the Morrison government in January 2022 and in July 2022 it was widened to allow more retirees to use it.
Put simply, this scheme allows Australians aged 67 or older to supplement their retirement funding by accessing wealth in their home. Repayment is deferred until the home is sold or the owner dies. HEAS is processed by Centrelink (and Department of Veterans Affairs) and provides eligible Australian homeowners of Age Pension age with a fortnightly income stream – or lump sums – from their home equity.
What are the rules:
As per Centrelink’s website, you may apply for this home loan if you meet all of these conditions:
- you or your partner are Age Pension age or older (67
- you get or are eligible to get a qualifying pension (Age Pension, Carer Payment or Disability Support Pension)
- you or your partner own real estate in Australia you can use as security for the loan
- you or your partner, or any co-owner of the property, aren’t bankrupt or subject to a personal insolvency agreement
- you have adequate and appropriate insurance that covers the real estate offered as security.
How much can you borrow?
HEAS loan amounts are tied to Age Pension rates. The annual amount is a maximum of 1.5 times the maximum Age Pension rate. This is also subject to a maximum balance which is calculated according to your age and the value of your home. These payments are not taxed.
Do HEAS payments affect your Age Pension entitlements?
As long as you take the loan amount as a regular income stream (which is spent on living expenses or non-assessable assets) then there is no impact on your Age Pension.
What is the interest rate?
The interest rate (since 1 Jan 2022) is 3.95%. Yes, this is low in comparison to market rates for reverse mortgage lenders (typically 8.4 – 9.63%). The rate is set at the discretion of the relevant minister and whilst market conditions would suggest it could be set much higher, it is possible that the Australian Government is prepared to offer a relatively ‘low’ rate in order to encourage as many retirees as possible to tap into their own assets in the here and now, rather than pay more via Age Pension entitlements, etc.
How many people are using the HEAS scheme?
Whilst there has been a near doubling of uptake in the past few years, according to Department of Social Services data (2023) , a mere 10,000 out of the nearly three million homeowners aged over sixty five have taken advantage of this scheme. There is much conjecture why. One sentiment is that many retirees spend years working hard to pay off their homes so the mere idea of taking on any form of debt again is just not desirable. Back in the 1990s some reverse mortgage products based upon the UK market models were tried and found to be wanting. But perhaps the most important innovation in home equity access in Australia is the introduction of legislation enforcing the ‘No Negative Equity Guarantee’ (NNEG) for both HEAS and reverse mortgages. The NNEG protects you from ever owing more on your loan than your home is worth.
In brief, what are the pros and cons?
Benefits of a HEAS loan include:
- HEAS offers a very low interest rate
- Both Age Pensioners and self-funded retirees are eligible
- Payments can now be received as an income stream or specified lump sum payments
Worth checking:
- Ultimately this loan, like all others, will need to be repaid when the property is sold or bequeathed. Legal costs and the above-mentioned interest will also apply
- It’s important that those with an interest in your estate are aware of any loan arrangements to prevent messy legal wrangles afterwards
- There may be other ways of topping up your income before accessing home wealth; it’s important to check
Could HEAS payments provide a reliable form of extra income in your retirement?
Or are you completely against the idea of home equity under any circumstances?
Professors Katja Hanewald and Hazel Bateman from the Centre of Excellence in Population Ageing Research (CEPAR) have written a very accessible discussion paper on equity access which explains all the key features for those who love to do even more homework.
And this brief government history of the HEAS further elucidates the fine print.
A Retirement Forecast consultation is a helpful way of discussing all retirement funding options. And dealing with a mortgage as you move into retirement is another time when a discussion with an experienced adviser helps you work through your possibilities.
Can you access a lump sum to update your car or buy a caravan? What impact would it have on your aged pension?
Hi Lyn, the impact would simply be that the car/caravan is now an assessable asset of yours instead of the money in the bank from the loan.
You explain HEAS schemes well but no explanation of Home Reversion Schemes.
Any reason why?
Hi Nick, this article was focused solely on the HEAS so we didn’t want to add anything else in. Home Reversion Schemes may come in a separate article though.
Can I convert a mortgage on my home to this low interest HEAS. My husband is 79 and I am 73 we are not pensioners?
Hi Colleen, if the reason you do not meet the eligibility criteria is due only to being over the income or asset threshold then you may still be eligible to apply for the HEAS but you do need to meet the age and residency criteria.
Steve, In the article above. Under Rules. It states all Australians over 67 may apply for this loan regardless of whether you are an age pension beneficiary or not. Y or No. Regards
Hi Vic, thank you for pointing out the contradiction, we’ve amended the article to be word for word what is on Centrelink’s website rather then try to interpret/translate it. If the ONLY reason you cannot receive one of the qualifying pensions is due to your income or assets exceeding the applicable threshold (ergo you meet the other criteria for age, residency etc.) then yes you can apply for the HEAS.
Can you access these HEAS loans / income streams if you still have a mortgage on your home but have significant equity.
Hi Mal, yes you can, you would usually borrow a large enough HEAS amount to pay off the mortgage plus whatever additional funds you need.
Your answer contradicts the article which says it is also open to self funded retirees. What am I missing here?
Hi Stephen, my apologies for the confusion caused. We have updated are article to match Centrelink’s own wording and I have edited my replies where necessary.
Hi Guys, great article and explanation.
Regarding Steve’s responses. The article indicates you only need to be eligible for a Centrelink Pension whilst Steve’s comment says you must be receiving one.
I am of the view that you do not need to be actually getting one, as an example: Say a person would qualify for a Centrelink Pension but they exceed either the assets or income test limits so are not entitled to a Centrelink pension they would still qualify for a HEAS.
Thank you John, we have tried to translate Centrelink’s criteria but unfortunately appear to have created more confusion then clarity. We have updated our article to match Centrelink’s wording and I have refined my previous replies as applicable to help clarify it for everyone.
Hi we are 67 and want to install ducted air and solar to our home App $25k . Can we access HEAS for this ?
Hi Neil, yes you could potentially so long as you meet the eligibility criteria.
I’m very interested in using this scheme but one thing your article didn’t mention is that there is a residence requirement. Although I gained citizenship back in the nineties (after 8 years working and paying taxes in Sydney) my family only gained permanent residence three years before I returned to the Uk after marriage breakdown. I returned to Oz (WA) in Feb 2019, I will not achieve 10 years’ residence with 5 years being consecutive till Jan/Feb 2026. I’m 74, and I believe that the same residence requirement stops me from getting an Australian top-up pension to augment my UK pension, which is my sole form of income. It seems very unfair!
Hi Anna, the criteria for the HEAS is that you must be an eligible Age Pensioner which has many rules to be met so for the sake of keeping the focus on the HEAS we opted not to divert into Age Pension eligibility. We have covered each of the facets of Age Pension eligibility in other articles on our site though if you’d like to have a browse.
Can both partners aces the scheme or only one? it would be on the same house in both partners name.
Hi Narele, both partners would need to meet the eligibility criteria but yes it can definitely be in both names and does not have to be in just one person’s name.
Hi. Can you repay the HEAS before you pass.
Hi Sue, you can repay the HEAS at any time.
Can you pay down/pay off the HEAS loan? For example, if I used it to pay off a higher interest rate mortgage, instead of paying down the bank loan I would pay down the HEAS loan.
Hi Mal, yes you can do that.
Thanks for the article. My partner and I are interested but he is only eligible as I’m under 67yrs. Would the loan need to be repaid if he died and it was in his name alone?
Hi Jo, in instances of a surviving partner, Centrelink will transfer the debt over to you if you are eligible for the HEAS yourself at that time, otherwise the debt will need to be repaid in full.
Would you recommend doing what Mal is suggesting? We are pensioners and have $150 000 left of our mortgage. We would continue to pay the mortgage but at a lesser rate. Our home is valued at around $800000
Hi Claire, there are many factors to consider so to be able to give you a genuine answer you would need to book a consultation with one of our specialists HERE.
Hi Slightly off subject, If I use my super or Part thereof to pay off debt does my super account count toward our total asset I am under retirement age and My partner is currently receiving a part pension Currently centrelink does not count my super in our combined asset, I have stopped working and do not have other income, we live off my partners income stream and the part pension previously mentioned
Hi Clive, the rule for your super to be exempt is that you are under Age Pension age AND it is in accumulation mode. So long as those are both true then your super will remain exempt.
My wife and I reside in an over 50s lifestyle community in Queensland where we own the home, but not the land. Can we access the scheme?
Hi Alan, the HEAS is not available to people in your situation.