Federal Government’s Home Equity Access Scheme: How does it differ from a reverse mortgage?
04 March 2022
With the recent changes to the Federal Government’s Home Equity Access Scheme (previously known as the Pension Loans Scheme), and further changes set to come on 1 July 2022, it is important to understand what the scheme is and how it compares to a reverse mortgage, to make an informed decision about which equity release product could be right for you.
What is a reverse mortgage?
A reverse mortgage is a type of equity release product. It is like a normal home loan but designed for the needs of people aged 60 and over. Most reverse mortgages offered by private providers are designed to allow seniors to release some of the equity in their home to fund a more comfortable retirement, as and when required. For example, at Heartland we have flexible loan drawdown options:
- Initial advance (lump sum);
- regular advances (for up to 10 years);
- cash reserve (similar to a ‘line of credit’); and
- redraw (for new loan agreements from 1 April 2017).
Want further detail? Read more about our drawdown options.
The amount of money you can borrow from a reverse mortgage lender depends on several factors such as property value, location and age. You continue to own your home, benefiting from any potential increase in the value of your property and you can live there as long as you choose. No regular repayments are required until the end of the loan. However, you are free to make them at any time.
All Australian reverse mortgages must comply with the National Consumer Credit Protection Act (NCCP). This means that certain borrower protections and processes are compulsory requirements for reverse mortgage lenders, and cannot be changed by the lender, provided loan obligations are met. These include (but are not limited to):
- no negative equity guarantee
- lifetime occupancy
- no regular repayments (total loan including interest is due once the home is sold)
- responsible lending assessment
- providing the borrowers with ASIC MoneySmart Calculator loan projections to see how the loan grows overtime
Providers may also offer other protections to give the customer more peace of mind. For example, Heartland offers the ability to select an equity protection option, and a 30-day cooling off period.
Read more about our borrower protections.
What is the Federal Government’s Home Equity Access Scheme?
The Home Equity Access Scheme is often thought of as a ‘government reverse mortgage’. However, it is not a home loan and there is no requirement to follow NCCP regulations, so it is technically another form of equity release only.
Currently, it can only be taken as a fortnightly income stream, which is added to the recipient’s pension. The amount you can borrow is up to 1.5 times the Australian maximum pension entitlement (and maximum depends on your pension eligibility and a loan calculation). For current age pension figures, visit the Service’s Australia website.
As a result of this structure, it is important to understand that full aged pensioners may not be able to borrow much, and self-funded retirees who have their own properties may be able to access the scheme entitlement in full, even if they do not receive an age pension.
It is also currently paid as a regular fortnightly top-up only (on top of any pension received), which means it may not be suitable for those who require a lump sum to pay off something like a mortgage, home renovations, a new car, aged care deposits and much more (either now or in the future).
Changes from 1 July 2022
The Federal Government has announced some structural product changes to the Home Equity Access Scheme from 1 July 2022. These include:
- adding no negative equity guarantee protection;
- up to two optional lump sum payments per year at a maximum of the 50% of the age pension in total;
- on top of this, the difference between the lump sum and maximum potential loan can be received as fortnightly instalments.
Read more about different equity release options.
An important decision
We encourage everyone considering home equity release to do their own research, make use of the resources on our website, obtain independent financial advice, and speak to Centrelink, friends and family. Our customer care team are specialists in reverse mortgages and can also answer any questions you may have. Please feel free to call us on 1300 889 338 or email us at [email protected] if you would like to know more about how a reverse mortgage may be able to help you live a more comfortable retirement.
Information provided is accurate as of 04 March 2022 and may change from time to time.