The federal government has overhauled the existing Pension Loans Scheme to allow senior Australians to take advantage of their home equity to fund their retirement through a reverse mortgage.
Now known as the Home Equity Scheme, the program allows Australian retirees — whether they are pensioners or self-funded retirees — to use the equity they have in their home to access non-taxable fortnightly loans and lump sump payments up to a maximum value of 150% of the rate of the Age Pension.
The Home Equity Scheme will have a lower interest rate of 3.95% p.a., down from the previous rate of 4.5% p.a. - due to take effect on 1 January 2022 - reducing the borrowing costs for participants, and allowing them to use the scheme for longer.
Retirees accessing the scheme must meet the following eligibility requirements:
- Have reached Age Pension age (66 or over)
- Own real estate in Australia
- Meet residency requirements
It is crucial to note that retirees who are not receiving a pension payment are still eligible for the scheme.
Minister for Families and Social Services Anne Ruston said the rebranding of the Pension Loans Scheme to Home Equity Scheme and the adjustment of interest rate is part of the government’s plan to find ways to support Australians in their retirement.
“The lower interest rate, together with the upcoming enhancements, will make the Scheme an attractive option for retirees,” Minister Ruston said.
“The new name also seeks to make sure that all retirees, not just those on a pension, know they can benefit from the scheme if it suits their circumstances.”
Council on the Ageing (COTA) Australia chief executive Ian Yates said the changes to the scheme builds on the findings of the Retirement Income Review, which showed that many older Australians could tap into their home equity to boost their funds and improve their standard of living in retirement.
“Assisting those older Australians who wish to safely access their substantial equity in their homes will mean access to funds to enable people to live a more comfortable retirement which they can afford, and they deserve,” Mr Yates said.
“Some of the changes, including the intention to permit lump sum payments, are subject to legislation passing in February, so we ask all parties will assist smooth passage through parliament so that older Australians can start reaping the benefits.”
Photo by Юлія Вівчарик on Unsplash.
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