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With interest rates at rock bottom and investment markets still volatile, many retirees are looking for ways to boost their retirement income.
If you’re eligible, the federal government’s Home Equity Access Scheme could be a worthwhile option to boost your regular retirement income or pay for expenses like home care.
Want to know more? Read on for SuperGuide’s detailed guide to how the Home Equity Access Scheme (HEAS) works.
What is the Home Equity Access Scheme?
The HEAS is a reverse mortgage style loan offered by the federal government that allows borrowers of Age Pension age to receive a tax-free fortnightly income stream by taking out a loan against the equity in their home. (From 1 July 2022, borrowers will also be able to withdraw lump sum amounts.)
Although the Pension Loans Scheme (the previous name for the Home Equity Access Scheme) has been around for about 30 years, few retirees know about it and even fewer have used it. This was due largely to some fairly restrictive eligibility rules.
But all that changed from 1 July 2019, when new rules expanded its eligibility criteria and withdrawal amounts.
How does the Home Equity Access Scheme work?
How much can I borrow?
You can choose any amount for your HEAS loan up to the maximum loan amount, which is the total loan you can access under this scheme.
Your (or your partner’s) age and how much equity you own in Australian real estate determines the size of your maximum loan amount.
The maximum loan amount generally increases each year as you or your partner get older and the value of your property increases. As the value increases, your maximum loan amount also increases and if it decreases, your maximum loan amount also decreases.
The fortnightly loan payments stop once your loan balance reaches your maximum loan amount. Interest, however, continues to be added to the outstanding balance until the loan is repaid.
How to calculate the maximum loan amount
The maximum loan amount is calculated using a formula:
Value of real estate* divided by $10,000 multiplied by the age component amount**
- *The value of your real estate security is rounded down to the nearest multiple of $10,000.
- **The age component amount is defined in the Social Security Act, Subsection 1135A(3).
Click the button below to see the age component amount for your current age, or use the calculator below.
Age component amount
| Current age | Age component amount |
|---|---|
| 55 or younger | $1,710 |
| 56 | $1,780 |
| 57 | $1,850 |
| 58 | $1,920 |
| 59 | $2,000 |
| 60 | $2,080 |
| 61 | $2,160 |
| 62 | $2,250 |
| 63 | $2,340 |
| 64 | $2,430 |
| 65 | $2,530 |
| 66 | $2,630 |
| 67 | $2,740 |
| 68 | $2,850 |
| 69 | $2,960 |
| 70 | $3,080 |
| 71 | $3,200 |
| 72 | $3,330 |
| 73 | $3,460 |
| 74 | $3,600 |
| 75 | $3,750 |
| 76 | $3,900 |
| 77 | $4,050 |
| 78 | $4,210 |
| 79 | $4,380 |
| 80 | $4,560 |
| 81 | $4,740 |
| 82 | $4,930 |
| 83 | $5,130 |
| 84 | $5,330 |
| 85 | $5,550 |
| 86 | $5,770 |
| 87 | $6,000 |
| 88 | $6,240 |
| 89 | $6,490 |
| 90 or older | $6,750 |
Source: Services Australia
Maximum loan calculator
The calculator below will estimate your maximum loan amount based on your age and real estate security for the loan.
Select your age and enter the amount you wish to use as security.
10 key facts about the new Home Equity Access Scheme
Here are 10 important points you need to know about how the HEAS currently operates:
1. Who is eligible?
Under the HEAS rules, all Aussies who reach Age Pension age are able to apply for a HEAS loan if they meet all the following eligibility criteria:
- You or your partner are of Age Pension age and meet the Age Pension residency rules (live in Australia and are an Australian citizen, permanent resident and/or special category visa holder for at least 10 years, including five years of continuous residence, or meet the requirements for widows of an Australian resident).
- You must be receiving – or qualify to get – a qualifying pension (including those who are maximum-rate pension recipients). You are still eligible for the HEAS even if you have a payment rate of $0 for either the income or assets test. Qualifying pensions include:
- Age Pension
- Carer Payment
- Disability Support Pension
- You or your partner must provide Australian real estate as security for the loan (see Point 6).
- You must have adequate and appropriate insurance covering the property you are providing as security.
- You must not be bankrupt or subject to a personal insolvency agreement.
2. Payments are a nominated amount
You are allowed to nominate your fortnightly loan payment amount, up to 150% of the maximum fortnightly payment rate for your eligible pension (including supplements). This means:
- Full-rate Age (or other qualifying) Pensioners can borrow up to 50% of the maximum payment rate for the fortnightly full-rate pension (including supplements).
- Part-rate Age (or other qualifying) Pensioners can withdraw fortnightly payments of up to a maximum of 150% of the full-rate Age Pension less the amount of their current fortnightly pension payments (including supplements).
- Self-funded retirees can borrow up to 150% of the fortnightly full-rate Age Pension.
HEAS borrowers can choose any payment amount up to the 150% full-rate Age Pension threshold.
3. No lump sums
Income from a HEAS loan is received as a regular income stream and you can choose the amount you receive each fortnight, up to 150% of your maximum pension rate.
Unlike normal commercial reverse mortgages, lump sums are not available under the HEAS. (From 1 July 2022, lump sums will be permitted under the HEAS, but this change is not yet law.)
4. Loans are from the government
The HEAS is administered by Services Australia and eligible retirees receive the loan payments from the federal government.
Payment amounts received from a HEAS loan are non-taxable.
5. Age-based limits apply
The amount you can borrow under the HEAS is limited to help ensure you do not end up owing more than your home is worth. For added peace of mind, the 2021 Budget proposes a No Negative Equity Guarantee (see section at the end of this article on HEAS changes announced in the 2021 Federal Budget).
Your maximum loan amount is limited by:
- Your age and, for couples, the age of the younger spouse or partner at the time the loan is granted
- How long you intend to receive payments
- Whether you are single or partnered
- The value of your home
- How much equity you have in the property and any amount of equity you wish to exclude from the loan.
6. Real estate is needed as security
To qualify for a HEAS loan, you or your partner must have equity in a property you can use as security for the loan.
The property can be your own home, an investment property or farmland but it must be located in Australia. The real estate can be owned by a company or trust, but either you or your partner must be an attributable stakeholder of the company or trust.
Property in a retirement village may be accepted as security if you or your partner’s name is on the freehold title of the property, you are not contractually prevented from selling the property, and you or your partner’s estate controls the distribution of the asset.
With a HEAS loan, you can choose how much of the value of your property you want to use as security for your loan.
7. Low interest rates
At present, there is a lower interest rate (3.95% per year compound) for HEAS loans than for comparable reverse mortgages in the open market.
| Date of effect | Interest rate |
|---|---|
| 1 January 2022 onwards | 3.95% |
| 1 January 2020 to 31 December 2021 | 4.50% |
| 25 December 1997 to 31 December 2019 | 5.25% |
| 20 March 1997 to 24 December 1997 | 6.25% |
| 10 July 1996 to 19 March 1997 | 7.90% |
Source: Social Security Guide 10 August 2020, Australian Government.
While the interest rate is generally higher than prevailing mortgage rates, this is to compensate the lender for the fact that, unlike normal mortgages where you make regular repayments through the life of the loan, a HEAS loan won’t be repaid until the home is sold or you choose to repay it.
It’s important to note that the interest is added to your outstanding loan balance each fortnight until the loan balance is fully repaid.
8. Repayable at any time
HEAS loan debts can be repaid in full or part at any time, however, they are generally repaid when the home used as security for the loan is sold, usually as part of the winding up of your estate.
9. No Age Pension impact
Fortnightly HEAS payments are not counted towards the Age Pension income test. The only exception is if you save your HEAS payments rather than spend them, which could result in the saved amount being means tested under the assets test.
Although normal reverse mortgages can affect the amount of Age Pension you receive because an income stream is assessed under the income test, HEAS payments are not counted.
10. Few fees
There are no establishment or monthly account fees with a HEAS loan, which compares with around $1,000 for a normal home loan mortgage. Services Australia may, however, charge costs (including legal fees).
Setting up a HEAS loan requires a valuation of your property by a licensed valuer, but you will not pay this cost. You will, however, have to pay any costs associated with registering and removing the charge or caveat Services Australia will place on your property’s title deeds.
Costs are determined after the loan application is made and can be paid immediately, or they can be added to the outstanding loan balance.
Pension Loans Scheme changes announced in the 2021 Federal Budget
In the May 2021 Federal Budget, the government announced changes to the PLS that will apply from 1 July 2022 (providing the necessary legislation passes Parliament). The key changes are:
1. PLS participants can apply for a maximum of two lump sum advances totalling up to their cap amount each year
Full-rate Age Pensioners participating in the PLS will be able to access lump sum advance payments equal to a total of 50% of the maximum annual rate of the full Age Pension. Based on current full Age Pension rates, this would be around $12,385 per year for singles, with couples combined able to receive around $18,670. This is on top of receiving your normal full-rate Age Pension payments.
Part-rate Age Pensioners participating in the PLS will be able to access lump sum advance payments equal to a total of 50% of a full-rate Age Pension. This is on top of receiving your normal part-rate Age Pension payments.
Self-funded retirees participating in the PLS will be able to access a lump sum advance payment equal to a total of 50% of the full-rate Age Pension. Based on current full Age Pension rates, this would be around $12,385 per year for singles, with couples combined able to receive around $18,670. This is on top of any other amounts you receive under the PLS up to the maximum annual amount.
If you don’t receive any Age Pension payments as a self-funded retiree, you are eligible to receive income payments through the PLS of up to 1.5 times a full-rate Age Pension. This is around $37,155 a year for singles and $56,011 for couples. Under the new rules from 1 July 2022, you will be eligible to bring forward one-third of your maximum PLS payments as a lump sum.
2. No Negative Equity Guarantee
Under the new rules applying from 1 July 2022, if you apply for a PLS loan, you or your estate can never owe more on your loan than the market value of your property.
This new No Negative Equity Guarantee will bring PLS loans into line with the rules governing reverse mortgage loans in the private sector.
