An alternative to reverse mortgages

Following on from our reverse mortgage article last week, subscriber Chris has suggested Centrelink’s Pension Loan Scheme as an alternative. But how does it work?

Reverse Mortgages, Pension Loans Scheme, Centrelink, Answer, real estate, tax, interest

Information provided by Centrelink

People of Age Pension age (or their partners) who cannot get a pension because of their income or assets (but not both), or those who only receive a part pension, can access capital tied up in their assets under the Pension Loans Scheme.

The Pension Loans Scheme is a voluntary arrangement, which provides support in the form of a loan, for a short or indefinite period. It is paid in regular fortnightly installments.

How much can I get each fortnight?

You can nominate to receive an amount, up to the maximum amount of Age Pension including Pension Supplement and Rent Assistance, each fortnight. If your entitlement is less than the full amount of Age Pension you can top up your fortnightly payments to the maximum amount of pension.

The Pension Loan Scheme is not available to people paid the maximum rate of pension.

The total amount of loan you can receive depends on the value of the property you offer as security, the equity you wish to keep in the property, and your age at the time the loan is granted.

Do I have to pay interest on the loan?

Compounding interest is charged on the balance of the loan and calculated on a fortnightly basis. The interest charged increases the repayment amount.

What can I use as security for the loan?

You must secure your Pension Loans Scheme loan with real estate owned in Australia. Any real estate, including your principal home, may be used as security.

The Pension Loans Scheme loan is secured by registering a charge with the Land Titles Office on the title deed of the property you offer as security. You will have to pay for any costs associated with this charge.

The Australian Valuations Office must independently value the real estate you offer as security for your loan independently. This is done at no cost to you.

Do I pay tax on these payments?

The loan payments you receive are not subject to income tax.

Who can get Pension Loans Scheme loans?

You may qualify for payment under the Pension Loans Scheme if you:

•        are a male 65 years or over, or a female of age pension age (determined by your date of birth), or their partner

•        receive or could receive some pension under the income or the assets test and

•        have real estate assets in Australia, that can be offered as security for the loan.

Is all of my real estate used as security for the loan?

It is not compulsory to offer all of your real estate assets as security for the loan. If you have more than one property, you may wish to exclude one or more from the assessment for a loan.

Find out more about the Pension Loans Scheme from Centrelink’s website.

Missed our article on reverse mortgages? Read it now.


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    12th Jan 2016
    I think that it's quite worrying for elderly people to be taking out loans, even when they have a pension. This is why it's so important to think about finance when you're younger. It's so important to plan for retirement when you are young and working and actually have money that you can put aside in your old age. I only hope that that's what the kids are being taught by their parents so that they don't have to worry about funds when it's too late!

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