Understanding the Home Equity Access Scheme

What is the Home Equity Access Scheme (HEAS)?

The HEAS (previously known as the Pension Loans Scheme) is a loan offered to eligible individuals by the Government and is paid by Services Australia. 

The loan is secured against your family home or other eligible real estate that you nominate and may provide you with access to regular loan instalments to support your cash flow, or lump sum loan amounts. 

The maximum and ongoing amounts that you may receive will be based on a number of factors, such as your age, the value of the property you use as security for the loan and the amount of any pension you may be entitled to. 

Interest is payable on the loan (currently at the rate of 3.95%) and the loan plus interest must eventually be repaid. 

Before you enter into the HEAS, there are a number of important things to consider. These include the long-term implications on your financial situation, the ability to fund future expenses, how a change in your circumstances could impact your debt and the impact on your estate planning arrangements. Below we summarise some of the important facts about the scheme and what you may need to think about before entering into it.

Am I eligible?

You may be eligible if you receive the Age Pension, Disability Support Pension or Carer Payment, or you would be eligible but you don’t qualify because of the income and/or assets test. 

Other eligibility rules require that:

• you or your partner are Age Pension age (or Department of Veterans’ Affairs service pension age), and
• you are not a bankrupt or subject to an insolvency agreement, and
• you have adequate real estate to offer as security for the debt, and
• you have appropriate and adequate insurance covering the secured property.

The property provided as security for the loan must be Australian real property. It may be the family home, an investment property, vacant land, farmland or a commercial property. The Government will place a statutory charge or caveat on the property which means the property cannot be sold or ownership transferred unless the charge is removed (ie by paying off your debt) or is transferred to another property.

How much can I borrow?

The maximum amount that you can borrow is determined by a formula which is based on your age (or your partner’s age if they are younger than you) and the value of the real estate used as security. Once the borrowing reaches your maximum loan amount, no additional loan payments can be made. However, interest will continue to accrue until it is repaid. This means that the total debt owing in the future may exceed your maximum loan amount.

If you already have a mortgage against the property you’re using as security, or you nominate a particular value of the property to be excluded, this will further reduce the amount you’re able to borrow under the HEAS.

How can I receive the loan amounts?

You will usually receive loan instalments as regular fortnightly payments (which, if you’re eligible for a pension, will be paid with your pension each fortnight). You may also choose to receive up to two advance lump sum amounts each year subject to a limit.

Receiving fortnightly payments

The regular amount you receive will depend on several factors, including:

• whether you’re entitled to a pension, and
• the amount of pension you’re entitled to

Generally, the maximum amount you can receive each fortnight, including any pension you’re entitled to, is 150% of the full rate of Age Pension[1]. This means:

• if you aren’t eligible for a pension payment, you can receive fortnightly HEAS loan instalments of up to 150% of the full rate of Age Pension
• if you receive the full rate of pension, the maximum fortnightly loan instalment you can receive is equal to 50% of the full rate of Age Pension
• if you receive a part pension, the maximum fortnightly loan you can receive is the difference between the pension you receive and 150% of the maximum rate of Age Pension

You can make changes to your fortnightly loan instalments anytime by notifying Services Australia online via your Centrelink account or completing and submitting the SA497 form to Centrelink.

Receiving lump sums

If you need access to a greater amount, you may be able to elect to receive up to two lump sum amounts in any 26 fortnightly period. The maximum combined total of the lump sums is equal to 50% of the maximum annual rate of Age Pension and this may reduce (including to zero) any fortnightly instalments for a period of time.

Are there any fees or costs?

In addition to interest costs, you will need to pay any costs involved in registering the charge (mortgage) against the property. This may be paid at the time of registration or added to your loan balance. If these costs are added to the loan balance, they will attract interest in the same way as the loan payments. You (or your estate) are also responsible for the subsequent cost of removal of the charge.

Are loan payments taxable?

The fortnightly loan instalments and any advance lump sum loan payments are not taxable; however, Age Pension payments are taxable.

Will the HEAS loan payments impact my social security entitlements or aged care fees?

The fortnightly instalments and lump sum payments are not income for the income test. However, if you don’t spend these amounts, or you use the loan to purchase or invest in an assessable asset, Centrelink needs to be updated, and this may impact your ongoing entitlement. For example, if you deposit the amounts in a financial investment such as a bank account, these amounts are not assessed for the assets test until 90 days after they are received. For the income test, the amount is deemed together with the balance of your bank account and other financial investments.

Is it possible that the debt I owe may be more than the value of my home?

A feature of the HEAS is a ‘no negative equity guarantee’ (NNEG). This means your HEAS debt will not exceed the market value of your loan at the time of repayment and you will not have to repay more than the market value of your property.

However, the NNEG may not apply if:

• you put a charge or encumbrance on the secured property after taking the HEAS loan and it prevents the Commonwealth from recovering the debt
• you engaged in fraud or misrepresentation regarding your participation in the HEAS
• the value of the property reduces due to deliberate damage caused by yourself or a person who occupied the property with your consent, or
• the sale of the property was not conducted on a fair and reasonable basis or in good faith.

When must the loan be repaid?

The HEAS loan can voluntarily be repaid partly or fully at any time. The loan plus any legal costs and accrued interest will eventually need to be repaid and, in some cases, a change of circumstances may initiate the requirement for the debt to be repaid in full. It is very important to understand the circumstances that can trigger the need to repay the loan and to understand the potential implications for your circumstances.

Change of circumstances including property sale

If you intend to make any changes to your circumstances, including plans to sell the property, you must notify Services Australia. Services Australia will arrange for the debt to be repaid when your property settles or you may provide another eligible property you own to secure the loan. 

What if I pass away?

If you pass away and you have no surviving spouse or if your surviving spouse is not eligible for HEAS in their own right (for example, because they have not reached Age Pension age), Services Australia will initiate collection of the debt from your deceased estate. It is important that your surviving spouse and/or the executor or administrator of your deceased estate is aware that the HEAS debt must be repaid at this time. You and your family must consider how the debt would be repaid in this event and what will happen if the home must be sold to repay the debt, especially if you expect to have family continuing to live in the home. 

If you pass away and your surviving spouse is eligible for HEAS, repayment of the loan is not required until your spouse passes away. Services Australia will initiate collection of the loan 14 weeks after your spouse’s death (Bereavement period). Your spouse may also pay the loan partly or fully at any time.

Interest will continue to accrue until the loan is fully paid.

What else should I consider and what are the risks? 

Your HEAS loan will reduce the available equity in your property over time. Interest will accrue at a faster rate if no repayments are made. The HEAS loan will be collected if you sell the secured property or from your deceased estate, whichever happens first. This may mean the inheritance you leave to your beneficiaries may substantially reduce. The HEAS loan may also have unintended consequences on the distribution of your deceased estate. It is important that you seek independent legal and financial advice. You should ensure that if you do enter into the HEAS, that your estate planning arrangements are reviewed and updated if necessary. Also, you may wish to speak to your family and other beneficiaries about your intentions. 

How do I apply for HEAS?

The easiest way to apply for a HEAS loan is to apply online via myGov, if you have linked the Centrelink service. Otherwise, you can complete the Home Equity Access Scheme single application form (SA496) or if you have a partner, the Home Equity Access Scheme application form (SA310). 

You must submit supporting documents to help Services Australia confirm the information in your application such as your age, identity, your partner’s details, bank account, tax file number and proof of your Australian residence. You may need to provide visa information and citizenship details.

You will need to provide details relating to the secured property such as loan agreements, contracts and the most recent mortgage statements and other documentation. If you are a couple, both you and your partner must sign the application form. If you are separated from your partner, you must provide separation details.

Appendix: Example calculation of maximum HEAS amount and payments

The maximum loan amount is determined based on age, as well as the value of the real property you use as security. Your age (or your spouse’s age if they are younger) is used to determine the ‘age component amount’. This amount is a dollar figure and is set out by the Department. Speak to an independent financial adviser to find out more. 

The maximum amount you can borrow is calculated as:

Age component amount       x          Value of real assets/$10,000

Where:

Age component amount is a dollar figure which is based on your age last birthday. For members of a couple, the age component amount is based on the age of the younger spouse.

Value of real assets is generally the value of the property provided as security, less your nominated amount and reduced by any other charges over the asset(s). The value of real assets will be rounded down to the nearest $10,000.[2]

For example, if you turned 70 on your last birthday, your age based amount is currently $3,080. If you offer your family home as security and it’s worth $1,000,000 with no debt currently secured against it, your maximum loan amount will be:

$3,080 x ($1,000,000/$10,000) = $308,000.

Your maximum loan amount will be recalculated in another 12 months after your next birthday. 

The maximum fortnightly amount of loan instalments you’d be eligible for (as at 20 March 2024[3]) would be:

• $558 per fortnight if you’re a single homeowner and you receive the full age pension (ie 150% x maximum  Age Pension rate of $1,116, less your Age Pension payment of $1,116)
• $1,674 per fortnight if you’re a single self-funded retiree who is a homeowner (ie 150% x maximum Age Pension rate of $1,116 less $0, as you’d not receive any Age Pension)
• An amount between $558.15 and $1,674.45[4] per fortnight if you’re a single person entitled to a part Age Pension.

IMPORTANT INFORMATION: This document has been prepared by Periapt Advisory Pty Ltd, ABN 67 648 208 253 AFSL 542418, based on our understanding of the relevant legislation at the time of writing. The information is of a general nature only and has been prepared without consideration of any particular individual’s objectives, financial situation, or needs. Before making any decisions, we recommend you consider independent financial advice. Effective from 20 March 2024

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