Thanks to the federal government's Home Equity Access Scheme (HEAS), not only is this possible, but, if you're Age Pension Age, even if you're not receiving one, this is a very good idea.

Turning on the equity tap to boost retirement income.

It’s the dream of most Australians to move into retirement with ownership of a debt-free home and, fortunately, most achieve this goal.

With the rate at which house prices have risen over the last few decades, and continue to do so, many retirees find that equity in their home is one of their biggest assets. They also wish they could tap into that equity without having to sell it.

Historically, reverse mortgages played a small role in filling this niche. However, with interest rates on these facilities getting close to double figures, they have, largely, fallen out of favour.

The old saying goes “You can’t have your cake and eat it, too”. However, thanks to the federal government’s Home Equity Access Scheme (HEAS), when it comes to keeping your house but tapping into the equity, retirees can easily now do both.

To qualify, these are the requirements:

1.     You are age pension age or older;

2.     You hold equity in Australian real estate in your name.

Points to note are:

1.     You don’t need to be an Age Pension recipient;

2.     You don’t need to own the property outright;

3.     You can even use property that is not your principal place of residence

Applicants can receive a fortnightly payment of up to 150% of the age pension and can even request a lump sum payment. Applications are made via Services Australia and are calculated on the equity offered as security, applicant’s age and benefits already being received.

Benefits paid become advances against a loan secured by a caveat over the property offered at security.

Interest is charged at a generous (compared to current traditional lending rates) 3.95% calculated on the daily loan balance and debited fortnightly. The good news is that, while the debt can be repaid at any time, it does not become payable until the earlier of the death of the last owner or the sale of the security property.

The relatively low interest rate of HEAS lends itself to a very attractive retirement income planning strategy.

Given that the returns on a typical balanced account-based pension (ABP) were in the realm of 12-14% for the last twelve months (although we would expect returns to be closer to half that number on the longer term), this is significantly above the interest rate of a HEAS loan.

Therefore, rather than drawing more pension from your ABP than you are compelled to, it makes sense to leave those funds earning a, potentially, higher return and drawing against property equity at 3.95% to fund your retirement lifestyle. In this way, your ABP balance is earning a higher return than the interest you’re paying for the HEAS loan.

What’s more, because this loan can be repaid at any time, if you ever become uncomfortable about this arrangement, it can quickly be unwound by withdrawing a lump sum pension payment and clearing the HEAS loan balance.

For those concerned about losing equity in their home, with the low interest rate that currently applies to HEAS loans, your home would have to be declining in value for your equity to be shrinking.

Given the current chronic undersupply of houses in Australia, that doesn’t look like being a problem any time in the foreseeable future.

Of course, as with anything to do with finance, the devil is in the detail, so it would be wise to exercise caution in proceeding with this arrangement without professional advice.