BR No Comments

Reverse Mortgage and Age Pension Entitlements

Many older Australians value their age pension payments. For the majority of recipients, the use of a reverse mortgage will have no effect on current entitlements.

Each age pension recipient is assessed on both their assets and income to determine their pension payment.

Maximum assets for Full pension

From 20 March 2020, pensions reduce when your assets are more than the limit for your situation.

Your situation Homeowner Non-homeowner
Single $263,250 $473,750
A couple, combined $394,500 $605,000

Maximum assets for Part pensions

From 20 March 2020, part pensions cancel when your assets are more than the limit for your situation.

Your situation Homeowner Non-homeowner
Single $578,250 $788,750
A couple, combined $869,500 $1,080,000

With a Reverse Mortgage, up to $40,000 is exempt from the assets test for up to 90 days, so the money needs to be spent within this time limit to avoid it becoming an assessable asset. If $50,000 is used for home repairs/maintenance on the principle place of residence, (an exempt asset), the monies spent will not be included as an asset. If the $50,000 is to pay for a new car, the value of that car then becomes a non-deemed asset.

Advisers are required to have a discussion with potential borrowers about future needs and many discussions lead to having a Line of Credit structure into the loan facility to meet any future needs, if and when they may occur. From an age pension perspective, it is important to know that a Line of Credit is not regarded as an asset.

 

 

 

Assessable income on financial assets

The Government has amended deeming rates from 1st May 2020.

Situation Deeming rate
Single Lower rate: 0.25% on the first $51,800 of your investment assets, plus
Upper rate: 2.25% on your investment assets over the amount of $51,800
Couple Lower rate: 0.25% on the first $86,200 of your combined investment assets, plus
Upper rate: 2.25% on your investment assets over the amount of $86,200

 

Gifting

Centrelink will assess any gifting amounts over $10,000 in one year, or $30,000 over 5 years. Amounts over these limits will be deemed. If a single person has no other assessable assets, it could be possible to use a reverse mortgage for gifting purposes of around $190,000, without affecting age pension entitlements.

Centrelink is the ultimate source for determining age pension entitlements , but an adviser from RMFS will assist potential borrowers with basic information about their qualifications.

It is important to ensure age pension recipients regularly update their information with Centrelink. In the first 3 months of 2020, our advisers have met 3 clients whose details have not been updated to reflect their circumstances, and have missed out on between $16,000 and $30,000 over the past 3 years.

 

Are you eligible for the full age pension?

From 20th March 2020, the full age pension is $944.30 p/f for a single and $711.80 each per couple.

We recommend recipients check their payments to reflect their current asset and income position.

rmfs_adwp No Comments

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.

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 Reverse Mortgage Finance Solutions today for a free discussion on how you can better meet your financial requirements in retirement.

rmfs_adwp No Comments

Are you considering a home reversion scheme?

For seniors investigating their options for finance during their retirement, home reversions schemes might come up as a potential option.

As a product, a home version scheme is only available in Sydney and Melbourne through Homesafe Solutions in partnership with Bendigo Bank. It basically is a part sale of the home, at a discounted rate against its future value – sounds complicated? Yes, it is.

Let’s use an example

If your home is valued at $500,000 and you access 10% ($50,000), in 10 years you would repay around 18-19% of its value at that time.

It is not a loan but regarded as a real estate transaction and therefore does not come under the Credit Act and its consumer protections.

As it is a lump sum, it is slightly more expensive than a reverse mortgage when reverse mortgages have an 8.5% interest rate – currently 6.5%.

As it is a lump sum only, it misses the advantages of the traditional reverse in that an income stream and Line of Credit are not available.

With a reverse mortgage, interest is calculated only on the drawn amount. As a Home Reversion Scheme is a lump sum only, the cost of providing those funds has a higher end debt to the consumer.

Its only real advantage is for those clients wanting a higher lump sums than the amounts allowed by either the Reverse Mortgage lenders or the Regulator (ASIC).

In comparison, a reverse mortgage can provide you with a more cost effective lending structure, greater flexibility and options to meet your long term needs.

Are you interested in finding out your finance options in retirement? Contact us today for a discussion with an expert who can listen to your needs and find the right solutions to fit.