Budget 2018: Retiree reverse mortgage scheme expanded
The government has announced the expansion of a scheme to allow pensioners to unlock the equity in their homes.
The Pension Loans Scheme expansion was announced in Tuesday's Federal Budget. The scheme would see a previous option available to part-pensioners expanded to Australians on a full aged pension.
Who will this affect?
The scheme is available to over-65s who can access the equity in their homes to supplement the full pension by up to 50%. The scheme would see couples on the full pension receive up to an extra $17,800, while singles on the full pension could receive up to $11,800.
The scheme functions like a reverse mortgage, but with an interest rate of 5.25%, is less costly than many reverse mortgages offered through private lenders. It also carries no establishment or ongoing fees.
However, unlike private reverse mortgages, payments are not available in a lump sum.
As with traditional reverse mortgages, the interest is capitalised, and no repayments are due either until the property is sold or the borrower dies.
The scheme was previously available only to part-pensioners, and was little used, according to The Sydney Morning Herald. The SMH cited a Productivity Commission report that revealed only 710 outstanding loans under the scheme.
When will the changes happen?
The mooted changes are to come into effect from 1 July 2019. Pensioners who choose to use the plan can access the equity in either their family home or an investment property. There will be age-based borrowing caps to ensure borrowers don't end up in negative equity.