Page 7 - Wealth-Adviser-Issue-137 (FWP)

ISSUE 137
MAY 2026

areas, with minimum property values around $200,000 and a one-off capital event — though the commercial lender will
exclusions for retirement villages, leasehold properties, and assess available equity net of any existing HEAS balance.
remote locations. HEAS can be secured against a broader
range of Australian real estate — including some investment The case against drawing home equity at all
and non-owner-occupied property — subject to Services A properly two-sided picture of these products requires
Australia’s eligibility requirements. sitting honestly with the case against. There is one, and it is
On flexibility, HEAS lets a borrower start, stop, or adjust real.
fortnightly payments at any time without penalty, while The first and most concrete concern is compounding
most commercial lenders offer staged advances and cash interest. A reverse mortgage is the only common form of
reserve facilities — a borrower can be approved for, say, household borrowing where interest accumulates without
$250,000 in total facility, take $40,000 immediately, and any pressure to repay. Over a long retirement, that com-
leave $210,000 as a reserve to draw later (interest only pounding can be substantial. At 3.95 per cent, a balance
accruing on what’s drawn). doubles roughly every 18 years; at 8.7 per cent, every eight
years. A 65-year-old who draws $150,000 from a commer-
When the decision tilts toward HEAS cial reverse mortgage may find the loan balance has grown
For Margaret and David — a couple looking for a modest to more than $500,000 by their mid-eighties if no voluntary
top-up to their income, with no immediate need for a large repayments are made.
capital sum — HEAS is almost certainly the right answer if The implication runs in two directions. For the borrower,
it’s available. The interest rate alone makes it the lower-cost it means less home equity available later — and “later” in
option by a wide margin, the income-test exemption a retirement context often means aged-care entry, where
protects their part pension, and the application can be done a refundable accommodation deposit can run into many
through MyGov and Services Australia without the broker hundreds of thousands of dollars. Drawing too much equity
and lender machinery commercial products require. too early can box the borrower out of options they didn’t
HEAS makes the strongest case in three situations. First, anticipate needing. For the estate, it means a reduced inher-
where the borrower wants regular, modest supplementary itance. The no-negative-equity guarantee protects against
income rather than a large capital sum — the 150 per cent complete erosion but doesn’t reverse what’s been spent and
ceiling is generous for income-stream purposes and restric- paid in interest.
tive for major capital needs. Second, where the borrower is a The second concern is the interaction with aged care.
part pensioner whose pension would be affected by holding When a person enters residential aged care, the family home
large amounts of cash from a commercial product. Third, receives a particular Centrelink and aged-care means-test
where the borrower wants the option to start small, see how treatment that depends on whether a protected person — a
it feels, and adjust. spouse, certain dependents, or a long-term carer — still lives
in it. The presence of a reverse mortgage doesn’t change this
When the decision tilts toward a commercial directly, but it does change the equation when the home
reverse mortgage is sold to fund a refundable accommodation deposit: the
Commercial products fit where HEAS doesn’t. For a loan must be repaid from the sale proceeds before the RAD
homeowner who needs a substantial lump sum — to pay can be funded, which can leave less capital available than
a refundable accommodation deposit for an aged-care the sale price suggests. We covered the RAD and aged-care
entry, to renovate the home for accessibility, to discharge financing in detail in Issue 129; the point here is that a
a remaining mortgage at retirement, or to assist an adult reverse mortgage taken in earlier retirement can constrain
child with a major need — HEAS won’t deliver the amount aged-care options later.
required. A commercial product is the practical option, The third concern is bequest preferences. For many
even at the higher interest rate, because the amount needed older Australians, leaving the home or its value to children
simply isn’t available through the government scheme. or grandchildren is a meaningful goal, and drawing equity
Commercial products are also the only option for those during retirement reduces that inheritance directly. This
under Age Pension age — Heartland Bank in particular ex- is not a reason to refuse the product — most adult children
tends to borrowers from 55. And where the borrower wants would rather their parents lived comfortably than scrimped
a cash reserve facility to draw against unpredictably, paying to preserve a bequest — but it is a conversation to have ex-
interest only on what’s drawn, the structure isn’t something plicitly, ideally with the family included, rather than to bury.
HEAS quite replicates.
It is also possible to hold both products simultaneously — The framework for thinking about it
HEAS for ongoing income, a commercial reverse mortgage for The question is rarely whether reverse mortgages are

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