If you suffered from physical injury, disease or mental illness due to military service, you may be receiving invalidity or incapacity benefits.

These benefits are paid as a pension, although, depending on the severity of your injury or illness, you may be entitled to lump sum benefits.

Will banks use these benefits when calculating your borrowing power?

How does an ADF medical discharge home loan work?

We know lenders that will accept 100% of your medical discharge benefits if you receive these benefits from any of the following military superannuation schemes:

  • Defence Force Retirement & Death Benefits Scheme (DFRDB).
  • Commonwealth Superannuation Corporation (ComSuper).
  • Military Superannuation & Benefits Scheme (MilitarySuper).

You may also receive benefits from the Department of Veteran’s Affairs (DVA), which falls outside of the Commonwealth Superannuation Corporation (CSC), trustee of the Government’s public sector and military super schemes.

By using incapacity benefits, you can increase your borrowing power and buy the property you really want.

As a member of the Australian Defence Force (ADF), you’ll also be entitled to:

Call us on 1300 889 743 or complete our free assessment form to find out if you quality for an ADF medical discharge home loan.

Also, check out the defence force home loan discounts page for more information on special discounts for ADF members.

Which medical discharge payments are acceptable?

The benefits you receive after being medically discharged go by a number of names including invalidity, incapacity or ‘MEC 4’ payments.

These benefits are compensation for economic loss and paid on a regular basis as a pension.

Depending on what the incapacity payments are replacing in your income package, these payments may or not be exempt from tax.

They are also offset by the employer-paid portion of Commonwealth superannuation you receive.

This is important because it can affect how much of your medical discharge payments the lender will use.

You may also be entitled to Permanent Impairment Compensation (PI), which is a lump sum payment for the loss or injury suffered as a result of your service.


How do I prove my incapacity payments?

You will need to provide the lender with a letter of entitlement or confirmation after you are deemed unfit for warlike service by the ADF.

These letters are normally 2-3 page documents and issued with the letter of either the DVA or the CSC.

Most of these letters have a 1-year validation, at which time, you will need to undergo a medical examination.

If the letter is expiring in a few weeks time, the bank may ask for an updated letter.

However, you don’t need to show proof of regular payments going into your account over a certain period of time.


What is a medical discharge?

There are many reasons you may be affected by temporary or ongoing injury from your ADF service, whether during wartime or peacetime.

If the ADF finds that you are unfit for “warlike” service, they may take action to end your employment.

What is deemed as warlike or operational service is set out in the list of determinations on the DVA website.

However, no matter whether it’s temporary or permanent incapacity, the ADF cannot take any action until they receive a recommendation from their medical board.

Under the ADF Medical Employment Classification Scheme (MECS), you may fall into one of categories:

MEC 1: Fully Employable and Deployable

Medically fit to serve.

MEC 2: Employable and Deployable with Restrictions

You can serve but there will be limitations on your range of duties, locations such as the tropics or cold climates, and/or the requirement to access health support on an ongoing basis such as through a physical therapist or psychologist.

MEC 3: Rehabilitation

You are deemed temporarily unfit for warlike service such as in the case of broken bones.

There is also an expectation that you will return to deployable status following a period of rehabilitation and recovery.

Previously, MEC 2 and 3 collectively fell under ‘Below Medical Standard’.

MEC 4: Employment Transitions

Allows for a medium-term role in another position or department.

You may be able to appeal this decision if you can show evidence that you can effectively continue your role.

MEC 5: Medically Unfit for Further Service (MUFS)

This category is broken up into two categories:

  • MEC J51: Not Employable on Medical Grounds — Medically unfit and not employable other than within applicable restrictions in the period leading up to termination.
  • MEC J52: Not Employable on Medical Grounds — Ineffective and unable to be employed in the period leading up to termination.

Generally speaking, ‘MEC 4’ or ‘CAT 4’ is the term used for an ADF member who has or will be medically discharged.

It’s also important to remember that while the ADF and their medical board will decide whether you’re fit for service, it’s the DVA or your military scheme provider that payout your claim.

They may even pay for their own medical examination when assessing your compensation claim, as set out in the Safety, Rehabilitation and Compensation (Defence-related Claims) Act 1988 (DRCA) and the Military Rehabilitation and Compensation Act (MRCA).


How will my incapacity payments be calculated?

Once the ADF has deemed you unfit for service, your benefits will be determined by the CSC, who will classify you into one of following three categories.

Your final pension also depends on the number of years you have served, specifically, the number of years of service in the permanent forces or as a continuous full-time reservist:

Class A

  • Applies when you have incapacity for civilian employment of 60% or more.
  • You will receive a CPI indexed pension from the employer benefit lump sum that would have applied based on your final average salary on the state of your retirement
  • You will receive the benefit multiple that would have applied if you have remained in the scheme up until retirement.
  • You will receive the lump sum of your member benefit as at 30 June 1999 plus your post 30 June 1999 member benefit.
  • Your final pension will also be readjusted to recover any accrued surcharge debt.

Class B

  • Applies when you have incapacity of 30%-59%.
  • You will receive a CPI indexed pension of either half the Class A rate or the pension on your service up until when you were discharged, whichever is greater.
  • You will also receive both your pre and post 30 June 1999 member benefit.
  • Your final pension will also be readjusted to recover any accrued surcharge debt.

Class C

  • Applies when you have incapacity of less than 30%.
  • You will also receive both your pre and post 30 June 1999 member benefit.
  • You will receive the employer benefit lump sum, accrued to the time of your discharge.
  • The employer benefit will continue to be paid into your super account until the age of 55, when you have the option to take it as a pension.
  • There are other rules around this so please seek assistance from your CSC super fund.

What about permanent impairment payments?

PI payments are assessed as a percentage of whole person impairment as set out in the Guide to the Assessment of the Degree of Permanent Impairment.

Basically, the DVA use their own calculation based on a questionnaire and a DVA assessor to determine the impact of the injury on your lifestyle and your ability to maintain your livelihood.

The assessor will assign an impairment rating on a scale of 0 to 100 points, a lifestyle rating from 0 to 7 and combine this with type of work you were during for the ADF at the time.

To be eligible for PI compensation, your impairment points must be 10 points or higher.

Only 5 points are needed in the case of hearing loss, loss of fingers or toes and the loss of taste or smell.

So how much will I receive?

PI payments are calculated by multiplying the maximum weekly rate of PI compensation and other factors set out in the Guide to Determining Impairment and Compensation (GARP M).

If your impairment points are 80 or higher, you’ll be entitled to the maximum PI compensation.

Below the 80 point mark, your payments will be scaled depending on your type of service, either warlike/non-warlike and peacetime.

Please check the DVA website for the current rates of periodical payments.


Apply for an ADF medical discharge home loan

We’re experts at helping ADF members quality for amazing home loan discounts.

Please call us on 1300 889 743 or fill in our online enquiry form and we can let you know if your incapacity benefits will be accepted.

Disclaimer: The above information shouldn’t be taken as advice as to your eligibility for permanent impairment or incapacity payments. We’re a mortgage broker and we’ve made every effort to include up-to-date information on this page. It’s essential you seek guidance from the DVA and/or your military super fund.


  • Fredrick

    Hi Team, My son had served in the army and due to an accident in the service, he has been discharged. However he receives regular medical discharge from them, would he able to get a home loan?

  • Yes Fredrick, we have some lenders in our panel who can accept 100% of your son’s medical discharge benefits. However, those benefits should be from either Defence Force Retirement & Death Benefits Scheme (DFRDB), or Commonwealth Superannuation Corporation (ComSuper), or Military Superannuation & Benefits Scheme (MilitarySuper). You can call us on 1300 889 743 or complete our free assessment form https://www.homeloanexperts.com.au/free-quote/ to find out if you quality for an ADF medical discharge home loan.