Reverse Mortgage

Pensioners raid authorities reverse mortgage scheme


In the May 2021 budget, the Morrison government expanded entitlement to the Pensions Loan Scheme (PLS): the government-funded reverse mortgage program that allows retirees to borrow up to 150% of the retirement pension rate against the equity in their home , and is open to all retirees (not just retirees) over the age of 60.

A full pensioner can receive a maximum increase in income equal to half of the old-age pension, while a self-financed pensioner can receive a maximum payment of 1.5 times the full pension.

The budget changes seem to have the desired effect, as participation in the PLS has quintupled in the past two years:

At the end of the 2018/19 financial year, only 768 people had taken advantage of the program, but their number rose to 4039 by the end of March this year …

Figures quoted by the scientists show that at the end of last year around two thirds of PLS ​​participants were full retirees, while the rest were partial retirees. The utilization by self-financed pensioners is relatively low.

“The Pension Loans Scheme plays an important role as the family home is typically a retiree’s greatest asset,” say the UNSW authors.

The biggest obstacle precluding the use of the PLS is the 4.5% interest rate, which is lower than commercial reverse mortgages but far higher than mortgages used to buy homes:

The average mortgage rates are much lower than the PLS.

In view of the sharp drop in market mortgage rates and the extremely low lending rates on government bonds, the federal government should probably lower them to around 3.5%.

Unconventional economist

Leith van Onselen is chief economist at MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith previously worked for the Australian Treasury, Victorian Treasury and Goldman Sachs.

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