Page 6 - Wealth-Adviser-Issue-137 (FWP)

ISSUE 137
MAY 2026

HEAS works differently from a commercial reverse mortgage in three

important respects. As at May 2026, the interest rate is 3.95 per cent per annum,
compounding fortnightly, and has been unchanged since January 2022.

Bank, and G&C Mutual Bank. Variable interest rates quoted absorb the shortfall. HEAS includes equivalent no-negative-eq-
in early 2026 were broadly between 8.25 and 9.5 per cent, uity protections under its own statutory framework.
with establishment fees typically in the range of $950 to Both products include occupancy protection — borrowers
$2,500 once legal and valuation costs are included. generally retain the right to remain in the home for life,
The Home Equity Access Scheme — HEAS — is the federal provided they continue meeting the loan conditions (main-
government’s reverse mortgage product, administered by taining the property, paying the rates, keeping it insured,
Services Australia. It was previously called the Pension and not otherwise breaching the contract). Surviving-spouse
Loans Scheme, was substantially expanded and rebranded protection is now standard: where both partners are co-bor-
on 1 July 2022, and has remained almost invisible to the rowers, the loan typically becomes repayable only when the
general public ever since. According to government data last surviving borrower permanently leaves the home, dies,
cited by UNSW and The Conversation in April 2026, only or breaches a key loan condition.
around 18,700 people were participating, drawing on what
Deloitte and other researchers estimate is roughly $3 trillion Where the two products diverge sharply
in housing wealth held by Australians aged 60 and over. The interest rate gap is the most obvious difference. At
HEAS works differently from a commercial reverse 3.95 per cent versus 8 to 9 per cent, HEAS is substantially
mortgage in three important respects. As at May 2026, the cheaper. Over a decade, a $100,000 loan compounding at
interest rate is 3.95 per cent per annum, compounding 3.95 per cent grows to around $148,000; the same loan at
fortnightly, and has been unchanged since January 2022. 8.7 per cent grows to around $231,000. That difference of
The total combined payment — the Age Pension (if any) plus roughly $83,000 over ten years is real equity that either
the HEAS loan payment — is capped at 150 per cent of the stays with the borrower’s estate or is lost to interest.
maximum Age Pension rate. And the standard delivery is a The borrowing limits also differ. HEAS caps the income
fortnightly income stream, although since 2022 it has also stream at 150 per cent of the maximum Age Pension rate
been possible to take limited lump-sum advances, capped — a combined ceiling of around $46,800 a year for a single
at 50 per cent of the annual maximum pension rate in any retiree in 2026 and around $70,600 for a couple. Lump
26-fortnight period. You don’t need to be receiving the Age sums under HEAS are capped at 50 per cent of the annual
Pension to use HEAS — self-funded retirees of Age Pension maximum pension rate. Commercial reverse mortgages have
age (currently 67) can access it on the same terms. no equivalent ceiling beyond the age-based LVR limits — a
75-year-old with a $1.4 million home might access $400,000
What the two products share or more, structured as a lump sum, a cash reserve facility, or
Both products are loans, not income, for tax purposes. staged drawdowns.
Neither requires regular repayments while the borrower The Centrelink treatment differs in ways that matter.
remains in the home, but both allow voluntary repayments HEAS payments — both fortnightly payments and lump-sum
at any time without penalty — a feature most readers don’t advances — are specifically exempt from the income test
realise exists, and one that can substantially slow the under the social security legislation. They are loan pro-
compounding for borrowers in a position to make occasional ceeds, not income, and they don’t reduce the Age Pension.
payments. Both can be drawn as a regular income stream, a Commercial reverse mortgage drawdowns are generally not
lump sum, or some combination, although HEAS limits the assessed as income when received, but unspent amounts
lump-sum option more tightly. Both compound interest on held in financial assets become subject to deeming and the
the outstanding balance until repaid. assets test soon afterwards. We come back to this below.
Both also carry a no-negative-equity guarantee, which is Eligibility is broader for commercial products in one
the single most important consumer protection in this part of direction and narrower in another. Heartland Bank lends
the market. Since 2012, under the National Consumer Credit to borrowers from age 55; most other commercial lenders
Protection Act, the borrower or their estate can never owe more start at 60. HEAS requires Age Pension age (currently 67).
than the home is worth when it is sold. If the loan balance has At the other end, commercial products are typically only
grown beyond the sale value of the property, the lender must offered against owner-occupied homes in established

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