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Using your home to fund a better retirement

Are you looking to boost your retirement income without drawing down too heavily on your super balance? You may be able to use the equity in your home via the Centrelink Home Equity Access Scheme – it could be a safer alternative to many reverse mortgage arrangements.

If you or your partner are at Age Pension age and need more income to fund your retirement, you may be worried about drawing down on your super too quickly. After all, it’s there to help support you throughout the rest of your life.

If you own (or have equity in) your home, you may have also considered an equity release arrangement like a reverse mortgage. Reverse mortgages typically attract higher interest rates than standard home loans and this interest compounds over time, meaning the amount owed could grow indefinitely.

The Home Equity Access Scheme (HEAS), formerly the Pension Loans Scheme, is a bit different. Offered through Services Australia and the Department of Veterans’ Affairs, it’s designed to provide you with a fortnightly non-taxable payment, secured against the value of your property (or part of it), to top up the retirement income you receive from the Age Pension and your super.

How does it work?

Sometimes, all you need is a little bit of extra income each week to ensure a comfortable retirement. The flexibility of the HEAS can help here, because you get to determine how much you get paid fortnightly and what proportion of your home’s value you offer as security for the loan.

Unlike with a reverse mortgage, the interest rate for loans under the scheme is set by the Government (3.95% as at February 2023). All HEAS loans also come with a no negative equity guarantee, which means that the amount repayable will never exceed the value of your home.

You’ll receive your set payment every fortnight until you reach the maximum amount of your loan. You may also be able to receive an advance payment as a lump sum, although this could affect subsequent fortnightly payments, under the scheme.

Am I eligible?

You can apply for a loan under the HEAS if you or your partner are at Age Pension age or older. This varies from 65 to 67 depending on when you were born – you can check your specific Age Pension age here. You or your partner must own real estate in Australia with adequate insurance on the property and you can’t be bankrupt or subject to a personal insolvency agreement.

There are also limits on the amount you can borrow (and therefore receive as a fortnightly payment). If you receive a pension currently, the total amount – that is, the pension plus the fortnightly payment from the HEAS loan – can’t be more than 1.5 times your maximum pension rate. If you don’t get a pension, the total fortnightly payment can be up to 1.5 times the maximum rate of a qualifying pension (you can find out more about qualifying pensions here).

There may be other rules and eligibility criteria you need to consider. A full list is available on the Services Australia website here.

How do I know if it’s right for me?

Reverse mortgages can be a frightening idea for some retirees because of compounding interest and the prospect that your family may end up having to repay substantially more than you initially borrowed. The HEAS aims to offset these concerns via strict borrowing limits, the no negative equity guarantee and a Government-controlled interest rate.

If you need to release equity in your home to help fund your retirement, this scheme offers considerably more safety and security than many of the alternatives. But how much should you borrow? When can (and should) you pay it back? How does using the scheme impact your long-term retirement goals?

Next steps

These are difficult questions to answer by yourself, which is why Broker Kit can help you when making this decision.