Nick Bruining: Home Equity Access Scheme offers up to 150pc of the age pension at a massive interest discount

For the many seniors who are asset-rich but cash-poor, the deal offered by the Federal Government’s Home Equity Access Scheme is well worth a look. It’s a reverse mortgage charging an interest rate that’s less than half the cost of most commercial deals. Last week’s Actuaries Institute report identified the family home as a viable means to fund a retiree’s lifestyle. It found that while most seniors own their home, more than 60 per cent have less than $250,000 in superannuation. Including a full age pension, that would generate a sustainable indexed income of about $56,250 a year for a couple and $41,500 for a single. In part, those low super balances referenced in the report are due to the low take-up rate of super for the self-employed and the fact that compulsory super has been slowly inching its way towards the current 11.5 per cent figure since the early 1990s. Nonetheless, there are also many West Australian seniors who bought houses in the 80s and 90s, and thanks to the spectacular growth in property values over the past few decades in some suburbs they can basically add a zero and double it. A house that cost $120,000 in the early 90s with a zero added is $1,200,000. Double that figure and you end up with $2.4m. Even with that kind of equity behind you, the idea of downsizing to another home or suburb to release money might be less than appealing. In those circumstances, a reverse mortgage might be a viable option. You can stay where you are but access the stored value. A reverse mortgage allows you to tap into the value of real estate assets, accessing money either through regular instalments or lump sum payments. Unlike a conventional mortgage where you make regular repayments, the interest charges on a reverse mortgage accumulate. When the property is sold, the amount borrowed and the accumulated interest charges are repaid in full. Centrelink’s Home Equity Access Scheme is a type of reverse mortgage that allows you to access a maximum of 150 per cent of the full rate of the age pension. A couple receiving no Centrelink pension, for example, could access $65,629 this year using the scheme. That can be through regular fortnightly payments or two separate lump-sum payments over a 12-month period. For singles, the maximum figure would be $43,535. In both cases, these amounts would be reduced by any age pension payments received, so people on a full pension could only access 50 per cent of the full pension. Only people with titled real estate can access the scheme, meaning retirement or lifestyle village residents miss out. The annual interest rate charged by the government is currently 3.95 per cent. That compares with one popular commercial provider charging 9.75 per cent. Admittedly there’s more flexibility with a commercial provider, but that interest rate also doesn’t include the other fixed charges that often apply. The other thing to remember is that the longer the reverse mortgage is in place, the greater the impact on the final amount that’s payable to the lender when you sell. A $100,000 reverse mortgage debt after 10 years using a commercial provider charging 9.75 per cent would put the amount owed at about $254,000. After 20 years, that debt would have grown to $642,000. The same debt using the lower HEAS interest rate would have grown to $147,000 after 10 years and $217,000 after 20 years. You would want to ensure that there’s sufficient money remaining to fund the next possible stage of your retirement accommodation needs, a place in an aged care facility. Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association