Google AI


Modern Australian

That reverse mortgage scheme the government is about to re-announce, how does it work?

  • Written by: Colin Zhang, Lecturer, Department of Actuarial Studies and Business Analytics, Macquarie University
That reverse mortgage scheme the government is about to re-announce, how does it work?

Many Australians have never heard of the Pension Loans Scheme, and many more assume it’s just for pensioners, which is understandable given its name.

That’s why the government is poised to rename it the Home Equity Access Scheme and make the interest rate it charges more reasonable, in the mid-year budget update on Thursday.

The soon to be renamed scheme is best thought of as a reverse mortgage where instead of paying down a home loan each month, the homeowner borrows more against the home each month, paying off what’s borrowed when the home is eventually sold.

Although reverse mortgages have been provided commercially for some time, the number of providers has shrunk as large banks have left the field in the face of increased scrutiny and compliance costs.

The government version is misleadingly named the Pension Loans Scheme (PLS), even though it is available to all retirees with homes and not just pensioners. It was introduced by the Hawke government in 1985.

The maximum amount that can be made available under the scheme and the age pension combined is 150% of the full pension. This means a retiree who is on the pension can get extra fortnightly payments from the scheme to bring their total payment up to 150% of the full pension.

If the retiree is not on the pension they can get the entire amount of 150% of the pension via the PLS.

Read more: Is it worth selling my house if I'm going into aged care?

The payments stop when the loan balance reaches a ceiling which climbs each year the retiree gets older and climbs with increases in the value of the home.

The ceiling for a 70-year old with a home worth $1,000,000 is $308,000.

The key difference between the PLS and commercial reverse mortgages is that the size of its lump sum payments is limited. Payments under the PLS have no impact on the pension, whereas commercial reverse mortgages can trigger the means test.

Colin Zhang, Macquarie Business School As attractive as the PLS might appear, hardly any of the four million or so Australians aged 65 and over have taken it up, perhaps as few as 5,000 – one in every 800. So in this year’s May budget the government announced two changes to make it more attractive. One was a “no negative equity guarantee”. Users would never be asked repay more than the value of their property, even if the property fell in value. The other was the ability to take out up to two lump sums per year totalling up to 50% of the full pension in addition to fortnightly payments. Total government payments would remain capped at 150% of the pension. New brand, same scheme That second change won’t begin until July 1, 2022 and is likely to be re-announced in Thursday’s mid-year budget update. Also announced in the budget was a decision to raise awareness of the scheme “through improved public messaging and branding” something which is also likely to be re-announced on Thursday along with the new name. The other change expected on Thursday is a lower interest rate charged on the sums borrowed. In January 2020, the rate was cut from 5.25% to 4.5% in accordance with cuts in other rates. From January next year it should reduce further to 3.95%. Attractive, but not riskless There remain risks associated with taking advantage of the scheme. One is that if you live long enough you are likely to eventually hit the ceiling and be unable to take out any more money, suffering a loss of income. If you chose to sell your home and move to an aged care service, you need to use a big part of your sale proceedings to pay what’s owed. Other risks are that neither the interest rate nor home prices are fixed. Just as the government has cut the rate charged in line with cuts to lower general interest rates, it might well lift it when interest rates climb. And home prices can go down as well as up, meaning that, at worst, all of the value of your home (although no more) can be gobbled up in repayments. Authors: Colin Zhang, Lecturer, Department of Actuarial Studies and Business Analytics, Macquarie University

Read more https://theconversation.com/that-reverse-mortgage-scheme-the-government-is-about-to-re-announce-how-does-it-work-171671

Better Business Photos Without Misleading Customers: An Australian Guide

A timber dining set looks inviting against a sunny deck, with cushions, lanterns and enough chairs for the whole family. But imagine the retailer sell...

Understanding a dental implant Melbourne Treatment Plan

A dental implant Melbourne patients may consider is one option for replacing a missing tooth, but suitability depends on oral health, bone support a...

How 3PL Logistics Australia Supports Faster and More Efficient Supply Chains

Why Has 3PL Logistics Become Important for Growing Businesses?  Gone are the days when supply chains were simpler and in minimal quantity. Now, the...

Common Skin Concerns and Treatment Options Available in Melbourne

Skin concerns can develop gradually or become noticeable following changes in age, lifestyle, sun exposure or hormonal factors. Pigmentation, rednes...

Why a Code-Compliant Home Can Still Feel Uncomfortable

When people build or renovate a home, they usually expect that meeting current building requirements will also produce a comfortable place to live. ...

Breach of Contract in Business: What Are Your Options?

Contracts are essential to business relationships. They establish expectations, allocate responsibilities and provide a framework for delivering goods...

How Pest Control Companies Can Rank for the Problems Customers Search First

Introduction SEO for Pest Control needs to start with the customer’s problem. Most people do not search for pest services in a neat or technical wa...

What Are the Benefits of Renovating an Older Home in Sydney?

Sydney has plenty of character homes, from Federation cottages to mid-century brick homes. Renovating rather than rebuilding can preserve what makes t...

Pool and Deck Design: How to Plan the Perfect Outdoor Living Space for Your Sydney Home

For many Australians, the backyard is where life happens. Summer barbecues, weekend swims and long evenings outdoors are all part of the lifestyle, ...

Is Solar Pool Heating Worth It? What Sydney Homeowners Should Know

There's nothing quite like a backyard pool on a hot Sydney day. But once autumn rolls in, many pools sit unused for months because the water is simp...

Planning a Luxury House Move: A Week-by-Week Timeline for Prestige Sydney Homes

Selling or buying a prestige home is a major milestone. Whether it's a waterfront residence in Birchgrove, a grand Federation home in Haberfield or ...

Downsizing or Upgrading Your Caravan? Here's How to Sell It Without the Hassle

Selling a caravan can feel like a major task, especially when you are unsure about its value, paperwork, or how to find a buyer. Whether you are dow...

The Best Overseas Adventure Holidays for Australians Who Love the Outdoors

Australia offers no shortage of incredible outdoor experiences, but sometimes the best way to satisfy your sense of adventure is to head overseas. A...

Cape Town Wine Shuttle: Winelands Tasting & Tours

Embark on an unforgettable journey through the picturesque Cape Winelands, where world-class wines and breathtaking scenery await. Our Cape Town Win...

Metal Fabrication: Choosing Metal Fabrication Melbourne Services for Custom Projects

What Modern Metal Fabrication Involves From individual components to complete structures, metal fabrication brings together processes such as desig...

Why Giant Rats Tail Grass Keeps Coming Back After Spraying

Giant Rats Tail Grass (GRT) is one of the most frustrating pasture weeds for farmers and lifestyle property owners. You spray an infested area, see th...

When Custom Cardboard Boxes Make Sense for Your Business

Custom cardboard boxes can be useful when a standard carton does not fit a product, packing method or presentation requirement particularly well. A ...

Full-Height vs. Pop-Top Caravan: Which Is Better for Family Travel across WA?

A pop-top caravan is an excellent choice for travellers who want the comfort of a caravan without committing to a larger, bulkier setup. With a lowe...