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.
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.