Settlement of Home Equity Access Scheme (HEAS) loan amounts 065-08020050

Example

Description

Debt less than equity and NNEG not triggered

A person has a property:

• worth $500,000
• with a $100,000 mortgage
• which provides equity of $400,000 to secure a HEAS loan

The person borrows under HEAS and accrues a debt of $200,000, at which point they reach their maximum loan amount (MLA) and cease to be able to borrow under the HEAS.

On passing:

• the market value is $600,000
• their mortgage is $80,000
• their HEAS debt is $260,000
• the adjusted value is $520,000 ($600,000 - $80,000)

As subsection 1144AA (3) does not apply, the maximum amount the Commonwealth can recover is the adjusted value, $520,000.

As the debt is less than the adjusted value, the Commonwealth can take steps to recover the full outstanding debt balance of $260,000.

Debt greater than equity and NNEG triggered

A person has a property

• worth $500,000
• with a $100,000 mortgage
• provides equity of $400,000 to secure a HEAS loan

The person borrows under HEAS and accrues a debt of $200,000, at which point they reach their MLA and cease to be able to borrow under HEAS.

On passing

• the market value is $400,000
• their mortgage is $100,000
• their HEAS debt is $320,000
• the adjusted value is $300,000 ($400,000 - $100,000)

As subsection 1144AA (3) does not apply, the maximum amount the Commonwealth can recover is the adjusted value, $300,000.

As the debt is greater than the adjusted value, the NNEG is triggered, and the Commonwealth cannot recover the remaining $20,000 of debt.

Debt greater than equity and NNEG does not apply

A person has a property

• worth $500,000
• with a $100,000 mortgage
• provides equity of $400,000 to secure a HEAS loan

The person borrows under HEAS and accrues a debt of $200,000, at which point they stop receiving HEAS payments.

On passing

• the market value is $500,000
• their mortgage is $200,000
• their HEAS debt is $320,000
• the adjusted value is $300,000 ($500,000 - $200,000)

In this instance, the mortgage was increased and immediately after it was increased, the HEAS debt balance was in excess of the maximum loan amount (MLA).

This triggers subsection 1144AA (3) (of the Social Security Act 1991 /equivalent in VEA-Veterans’ entitlement Act 1986) and the NNEG does not apply.

The Commonwealth can take steps to recover the full amount of the debt outstanding, $320,000.