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The Revised Pension Loans Scheme compared to a conventional reverse mortgage

Much has been written about the recently revised Centrelink Home Equity Access Scheme (HEAS). 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.

 

What is a reverse mortgageBorrowers must be property owners and the loan is secured by a caveat over their home, or an investment property.

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 HEAS.

The loans are administered by Centrelink and are offered at a low interest rate, (currently 3.95%) and the loan funds are advanced as extra payments on a fortnightly basis. For a single person a borrower could access $538.35 p/f, whilst a couple could access $826.70 p/f. (as at 20 th Sept 2023).

Access to a HEAS is now available as a lump sum, but cannot be greater than the combination of 26 fortnightly payments – $13,997.10 for singles and a combined $21,494.20 for a couple.  As with conventional reverse mortgage loans, the loan amounts received are not taxable. Centrelink regards reverse mortgage funding as a drawdown on capital, and assesses the funds on what use is made. They can be assessed in both assets and deemed income calculations.

Conventional Reverse Mortgage

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 55 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 Home Equity Access Scheme offers pensioners (who only require extra income on a fortnightly basis, or a small lump sum), 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 higher income funding (I.e. more than the fortnightly payment available for the HEAS, or the small lump sum) or larger 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 Your Advisor today for a free discussion on how you can better meet your financial requirements in retirement.

Nicholas Taylor No Comments

Loan Scenario of the Week (11/08/2023)

Thomas (aged 84) and his wife Florence (aged 85) live in their unencumbered home in the Sydney Hills District. Thomas has just fully retired and closed his business which he had been operating part time.  

Florence recently had a fall and Thomas has also found it difficult to come inside and up the stairs from the garage. As a result of this they have decided they want to install a lift in their home. They have done research and the cost is likely to be around $70,000 to $80,000.00. 

Their car is over 15 years old, so they are considering replacing it.  Thomas has a credit card with a balance of around $15,000. He would like to use funds from the Reverse Mortgage to pay this balance off. As they use it for a lot of transactions, they do not want to close the credit card. 

Then they want to have a credit line available for one off contingent events or discretionary spending such as travel. Having funds available will also mean they can pay for aged care assistance in the home if they need it in future. 

They have 7 children who are all financially independent. If necessary the property could be sold to pay for aged care if needed, but the children are also committed to helping their parents stay at home for as long as possible. The funds are not for regular expenses but for one off expense including discretionary spending (such as the adding of the elevator.) 

(Names, locations, amounts, & other personal details have been changed to protect the client’s identity.)

Nicholas Taylor No Comments

Loan Scenario of the Week (28/07/2023)

Lyndall (74) lives with her husband George (80) in the house in the Blue Mountains. George has dementia, and Lyndall has signed on his behalf as a Power of Attorney.

This loan is to pay off several debts that have built up over time. This is because the costs of living and the extra expenses to look after George has pushed the couple to living right on line of their pension incomes. They have 2 financial arrangements from when they were retiring that they have been paying off for over 10 years.

Lyndall has taken out a Reverse Mortgage to pay out these debts, and have some additional funds to supplement their pension income and money for one of large expenses. Lyndall is also worried that they could incur further large expenses in caring for George. The Reverse Mortgage will make funds available for this purpose.

This loan has given Lyndall great peace of mind in an already difficult time, she can now concentrate on caring for George and not having to worry about their finances.

(Names, locations, amounts, & other personal details have been changed to protect the client’s identity.)