Using the Home Equity Access Scheme to fund aged care

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What is the Home Equity Access Scheme?
Supplementing Home Care Packages with the HEAS
How much income does the HEAS offer?
What about lump sums?
Can I lose my home?
The bottom line

It is most people’s preference to remain living as independently as possible, in their own home, for as long as possible. While the government-subsidised Home Care Package scheme is designed to help make this happen, the amount of money available doesn’t always cover the cost of services and equipment required.

One measure aimed at helping people to stretch their resources and stay at home is the Home Equity Access Scheme (HEAS), formerly known as the Pension Loan Scheme (PLS).

What is the Home Equity Access Scheme?

The Home Equity Access Scheme is a reverse mortgage-style loan, offered by the federal government and administered by Centrelink. It allows borrowers of Age Pension age to turn equity in their home into a regular income stream or lump sum payment.

Good to know

A reverse mortgage is a bit like a home loan in reverse. You borrow money against the equity (or market value of a property less any mortgage debt) you have in your home.

Borrowers pay interest but this is added to the loan amount, so regular repayments are not required. Importantly, you can stay in your home until it is sold, usually on your death.

From 1 July 2022 retirees have been able to take some of the equity released from their home as a small lump sum. The government has also brought the scheme in line with commercial reverse mortgages, with a no-negative-equity guarantee, ensuring borrowers can never end up owing more than the value of their home.

Those closest to the scheme see it as playing an important role in helping people age in their own home.

Note: The current interest rate on HEAS loans is 3.95%, which compounds fortnightly on the outstanding loan balance. The longer you have the loan, the higher the final debt will be.

Supplementing Home Care Packages with the HEAS

One potential use of the HEAS is to supplement a Home Care Package, or to act as a stopgap until one is delivered.

Home Care Packages provide eligible older individuals with limited funding to buy goods or services needed to keep them in their own home, but they aren’t always sufficient.

The size of the package is supposed to reflect a person’s care needs but the most you can receive, before basic and income-tested care fees and provider fees, is $57,699 a year.

There are four home care package levels, starting at level one with $13,150 a year up to level four with $57,699 a year.

This potentially translates to between two and 12 hours help a week depending on the services required. If daily personal care is required or costly equipment such as a wheelchair, the package can be quickly depleted.

Read more about how home care packages work.

The national waitlist for a Home Care Package has been slowly declining as the government releases more packages. The general wait time for an approved package has been reduced to one to six months.

Whether or not someone is eligible for a Home Care Package is determined by the Aged Care Assessment Team.

For people whose income is already stretched, the HEAS could help fund home help while they wait for a Home Care Package to be allocated. It could also meet additional living expenses or pay for care in addition to the services covered under a package.

How much income does the HEAS offer?

Currently, the HEAS allows you to choose your fortnightly loan payment amount, up to a maximum of 150% of your maximum pension entitlement (including supplements). This means:

Full Age Pensioners can withdraw up to 50% of the maximum rate of their fortnightly pension payments
Part Age Pensioners can withdraw fortnightly payments up to a maximum of 150% of the full Age Pension less the pension amounts they receive (including supplements)
Self-funded retirees can borrow up to 150% of the fortnightly full Age Pension.

Lump sum payments

From 1 July 2022, it is possible to request an advance payment instead of (or in addition to, if only partly converted) the fortnightly loan payments over the following 26 fortnights. The maximum lump sums are currently $20,852 for couples or $13,832 for singles.

For example, a single person who receives a part Age Pension of $400 per fortnight could borrow up to $1,196 per fortnight ($31,096 per year) to bring their payments up to 150% of the maximum single Age Pension.

If they decided to take a lump sum payment, they could take up to $13,832 as an advance payment. If they take just $10,000 the fortnightly payments would drop to $811.38 for 12 months. After that it would increase to the maximum permissible $1,196 per fortnight.

Learn more about the current Age Pension rates.

Note

The calculations around how much you can borrow, the income you can receive and how much home equity you will be left with can be complex.

For more information and a calculator to help you work out how much you might be able to borrow, see How the Home Equity Access Scheme works.

There are private companies that help arrange HEAS loans for eligible retirees for a fee. Commercial equity release providers can also provide guidance and handle the loan arrangements for a fee. Learn more about reverse mortgages including a list of providers.

However, we also strongly advise people to get independent financial advice before proceeding.

The following example shows how regular income from the HEAS can help eligible retirees pay some of the costs of a Home Care Package and other care needs.

Case study

Mary is an 80-year-old widow on a part Age Pension who wants to remain living in her own home on a government-subsidised Home Care Package.

Under the HEAS, Mary can receive up to an additional $796 a fortnight on top of her $800 a fortnight Centrelink part-pension. This extra income would help her make ends meet a little better by releasing some of the equity she has in her $500,000 home.

Mary works out she needs $200 a fortnight to meet her regular bills.

Her care needs mean she is entitled to the highest level of Home Care Package but due to her level of income Mary must contribute a minimum of $150 a fortnight towards the package.

Rather than take the whole amount she is eligible to receive under the HEAS, she decides to take $350 extra a fortnight just to cover her costs.

By accessing the HEAS and withdrawing $350 a fortnight, Mary can use $200 a fortnight for her regular bills and $150 a fortnight to cover her share of the Home Care Package fees. Mary can now relax knowing the cost of the package and her bills can be covered.

What about lump sums?

A significant extension to the scheme, starting 1 July 2022, is the ability to access up to two lump sum advances (within any 12-month period).

These lump sum advances will be capped at 50% of the maximum annual rate of Age Pension and count towards the 150% overall cap.

Based on current rates, this would allow a single person to receive lump sum payments up to $13,832 per year and $20,852 combined for a couple.

The introduction of these advance lump sum payments is expected to increase the attractiveness of the HEAS, which was slow to take off.

It would give people the flexibility to pay for large one-off expenditures such as replacing a car, making home improvements or renovations, or to pay for aged care services.

Can I lose my home?

There are two concerns many people have about equity release loans, the first being what happens if the loan someone takes out is more than the value of the property.

In response, the government introduced a No Negative Equity Guarantee for HEAS loans from 1 July 2022.

The guarantee, which is mandatory for commercial reverse mortgages, ensures that borrowers will never have to repay more than the market value of their property.

This reassurance will also help people’s decision-making if they are unable to keep a loved one at home forever and they end up having to move into residential aged care. Once there, they may be required to pay a refundable accommodation deposit or daily costs higher than their pension or other income can cover. To cover the gap, they could tap into the HEAS for additional income.

The second concern is around inheritance and whether there will be any equity left for the next generation.

Any remaining home equity available to the homeowner’s estate will depend on factors including:

The market value of the home to begin with
Property growth rates in the area
The amount of money borrowed
The interest rate charged
The age at which it was borrowed and how long the borrower lives.

Due to the compound nature of equity release, the longer a person remains in the home before it is sold, the more will be owed at the end and the less returned to the estate.

In the case of older, cash-strapped retirees, taking out a HEAS for a limited period can leave most of the equity in their home intact to pass on to their family.

Case study

Ron and Mary are self-funded retirees. Ron, 85, recently moved into residential aged care where the fortnightly fees are $1127.

Mary, also 85, still needs to keep the home running and would like to know she can maintain a similar standard of living while she can. Their cash reserves have run low, leaving them vulnerable to any big expenses like a new wheelchair for Ron or home modifications for Mary.

With about $30,000 needed for her husband’s care and her own annual cost of living being about $60,000, they look to the Home Equity Access Scheme as a way of accessing some of the equity in their $800,000 home to help meet their costs.

Using a HEAS calculator, the self-funded retirees could boost their income by around $2406 a fortnight, or $62,556 a year.

Being 85, they don’t expect they will need a long-term loan. If they took the maximum allowable (which they don’t think they will need) and the value of their property increased by about 3% a year, then after five years their reduced home equity would be about $563,616.

Over this time the total pension loan that would need to be paid back is about $364,000.

The bottom line

If the true aim is to keep someone living in their own home for as long as possible and use the resources available to them to do this – like the equity in their home – then the HEAS could assist other government policies targeting the same outcome.

The sums will be different for everyone, so we strongly advise you to get professional financial advice before acting.