The revised Pension Loans Scheme Compared to a Conventional Reverse Mortgage Loan

Much has been written about the recently revised Centrelink Pension Loan Scheme (PLS). It is a government-funded reverse mortgage loan that offers eligible seniors (not necessarily pension recipients) increased pension payments advanced as a reverse mortgage loan. Borrowers must be property owners and the loan is secured by a caveat over their home, or an investment property.

Pension Loan scheme or Conventional reverse mortgage

Some articles have incorrectly stated that eligibility is restricted to Australians of Age Pension age who are currently receiving an eligible pension. This is not the case – You do not have to be receiving a pension to be eligible for the PLS.

The loans are administered by Centrelink and are offered at a fixed interest rate, (currently 5.25%) and the loan funds are advanced as extra payments on a fortnightly basis. There are no lump sum payments available. This is a significant difference between the 2 loans, with conventional reverse mortgage loans offering Lump Sum payments as well as regular instalments and cash reserve facilities.

The maximum income available on a combined Age Pension and Centrelink PLS income stream is 150% of the Age Pension rate per annum. As with conventional reverse mortgage loans, the loan amounts received are not taxable and do not count in terms of the Age Pension income test.

The maximum loan amount with a conventional reverse mortgage is based on a formula of age and property value, starting at 15% of property value at age 60 and increasing by 1% per year of age, up to 45% at age 90. There is no maximum dollar amount on conventional reverse mortgage loans.

Both loans require a property valuation and borrowers pay for establishment fees and charges.

Summary.

The pension Loan Scheme offers pensioners who only require extra income on a fortnightly basis a lower cost option to obtain those funds. Payments are limited to the difference between the amount of pension they are currently receiving and 150% of the full pension rate.

People requiring extra funds (I.e. more than the fortnightly payment available for the Pension Loan Scheme) or requiring lump sum payments will need to apply for a Conventional Reverse Mortgage loan.

Would you like to find out the options available to you? Contact Melbourne Reverse Mortgages today for a free discussion on how you can better meet your financial requirements in retirement.

Mary and John – a client story

Mary and John had elected to retire early when John was made redundant at age 62. They had $42,000 owing on their home and their mortgage repayments were only $56.00 per week. John had $58,000 in his super account that they rolled into an allocated pension.

After 4 years of retirement, their car needed replacement and they were finding life difficult. They had been considering selling their home of 12 years and downsizing to a smaller house or unit. They did NOT want to move from their suburb and were concerned at the $15,000 odd costs of changing their home.

Read more about how they were able to maintain their lifestyle, without sacrificing any assets!

Some of our FAQs

Do I still retain the ownership of my home?

Yes, your name remains on title, like any other traditional mortgage. The lender is simply registered as having an interest like your conventional mortgage loan.

What is the acceptable age of the youngest borrower?

60 years, however, some lenders require the youngest borrower to be 70 years of age.

Are the borrowers protected under the National Consumer Credit Protection Act?

Yes, the law has been amended to include senior’s equity release loans under the National Consumer Credit Protection Act.

Read more at our main FAQs page

The revised Pension Loans Scheme Compared to a Conventional Reverse Mortgage Loan

DOWNLOAD OUR PRACTICAL GUIDE TO REVERSE MORTGAGES IN AUSTRALIA

Information

A Reverse Mortgage with internet banking features?