22 September 2023
The best way to fund your retirement will look a little different for everyone. Some people choose to supplement their super savings and Age Pension payments using the Home Equity Access Scheme. This allows eligible homeowners to use equity in their homes as an income stream. Read on to find out more about the Home Equity Access Scheme.
For homeowners who are eligible, one retirement income option is a government initiative called the Home Equity Access Scheme (HEAS). This used to be called the Pension Loans Scheme and it allows retirees who meet certain criteria to turn the equity in their homes into an income stream.
The Home Equity Access Scheme
The Home Equity Access Scheme is a voluntary non-taxable loan from the Australian Government. If you own property, the Scheme allows you to use the equity in your home by borrowing against the value of your property. You receive that loan as a fortnightly income stream, a lump sum or a combination or both. You can choose how much you receive each fortnight – your combined loan and eligible pension payments could be up to 1.5 times your maximum pension rate.
Eligibility for the Home Equity Access Scheme
- Government Age Pension; or
- Carer Payment; or
- Disability Support Pension.
You don’t have to be receiving a government pension. For example, you may you meet the rules for a qualifying pension but don’t get a payment, for example, your rate is zero because your income or assets are over the threshold.
In addition, you need to:
- be of Government Age Pension age or older;
- you or your partner need to own real estate in Australia to use as security for the loan;
- have appropriate insurance covering that real estate; and
- not be bankrupt or subject to a personal insolvency agreement.
How the Home Equity Access Scheme works
You draw an income from the equity in your home over time. You accrue interest on the income as you receive it until you pay off the loan. The income you’ll receive comes from the Australian Government – the same as Government Age Pension payments.
The government is responsible for setting the interest rate of the Home Equity Access Scheme. The interest rate as at 7 June 2023 is 3.95% per year1. You can check the current rates on the Services Australia website.
Compound interest is calculated fortnightly on the amount you’ve been paid to date – not the total amount you’re eligible to receive over time.
If your needs change, you can choose to stop receiving the Home Equity Access Scheme income at any time – you’re not locked in.
Repayments
You don’t have to repay anything until you exit the scheme, which happens if you choose to pay off the loan, or if you pass away.
You can choose to repay the money you receive through a Home Equity Access Scheme loan, either in part or full, whenever you’re ready or able. If you sell the property, you can either:
- transfer the loan to another property, including your new home, or
- repay the loan on the date of settlement.
Advance payments for Age Pensioners under the Scheme
If your loan is under the Home Equity Access Scheme, you may be eligible to access lump sum advance payments.
The scheme can provide immediate access to lump sum payments of up to 50% of the maximum pension rate of your qualifying pension in any 26-fortnight-period. This means you can access up to $14,257 for singles, and up to $21,494 for couples1.
Participants can get up to 2 advance payments in any 26-fortnight period.
Learn more about advance payments on Services Australia's website.
The No Negative Equity Guarantee
No Negative Equity Guarantee means borrowers under the Home Equity Access Scheme, or their estate, won’t owe more than the market value of their property.
For example, let’s say your loan balance is $300,000. If you sold your property for $250,000 and don’t have a mortgage, you’d only need to pay $250,000 (conditions apply).
This brings the Home Equity Access Scheme in line with private sector reverse mortgages.
Learn more about the No Negative Equity Guarantee on the Services Australia website.
Deciding if the Scheme is right for you
If you own real estate, the Home Equity Access Scheme could be something to consider to boost your retirement income. But it’s a complex scheme, with several criteria that need to be explored in detail in relation to your personal situation. Services Australia now offers 2 calculators/estimators:
AustralianSuper retirement expert Louise Aracas, says: ‘There’s a range of options to explore when it comes to funding your retirement — the Government Age Pension, your super savings, and any non-super savings, such as owning a property. To get the best retirement outcome many people need to take advantage of all 3 options in some way. For property owners, the Home Equity Access Scheme is one option to consider, and it means you don’t necessarily need to sell your house to access the equity.’
‘As with any financial product you need to have a plan. Knowing how and when you’ll get in and get out of a scheme or product can often be the key to attaining a beneficial outcome. The Home Equity Access Scheme relies on a several personal variables, so it’s always good to start off speaking to an adviser,’ says Aracas.
For more information, visit the Services Australia website, or speak with a financial adviser.
Advice for AustralianSuper members
If you’re a member of AustralianSuper, you have access to professional financial advice on a fee-for-service basis2. You can speak with an advice team member to arrange an appointment, or find a registered adviser.
References
1. Correct at time of publication. For the most up to date information visit https://www.servicesaustralia.gov.au/home-equity-access-scheme.
2. Personal financial product advice is provided under the Australian Financial Services Licence held by a third party and not by AustralianSuper Pty Ltd. Some personal advice may attract a fee, which would be outlined before any work is completed and is subject to your agreement. With your approval, the fee for advice relating to your AustralianSuper account may be deducted from your AustralianSuper account subject to eligibility criteria.
This may include general financial advice which doesn’t take into account your personal objectives, financial situation or needs. Before making a decision consider if the information is right for you and read the relevant Product Disclosure Statement, available at australiansuper.com/PDS or by calling 1300 300 273. A Target Market Determination (TMD) is a document that outlines the target market a product has been designed for. Find the TMDs at australiansuper.com/TMD.
The Financial Services Guide is available at australiansuper.com/representatives