The Revised Pension Loans Scheme compared to a conventional reverse mortgage

Much has been written about the recently revised Centrelink Home Equity Access Scheme (HEAS). 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 HEAS.

The loans are administered by Centrelink and are offered at a low interest rate, (currently 3.95%) and the loan funds are advanced as extra payments on a fortnightly basis. For a single person a borrower could access $538.35 p/f, whilst a couple could access $826.70 p/f. (as at 20 th Sept 2023).

Access to a HEAS is now available as a lump sum, but cannot be greater than the combination of 26 fortnightly payments – $13,997.10 for singles and a combined $21,494.20 for a couple.  As with conventional reverse mortgage loans, the loan amounts received are not taxable. Centrelink regards reverse mortgage funding as a drawdown on capital, and assesses the funds on what use is made. They can be assessed in both assets and deemed income calculations.

Conventional Reverse Mortgage

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 55 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.

Summary.

The Home Equity Access Scheme offers pensioners (who only require extra income on a fortnightly basis, or a small lump sum), 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 higher income funding (I.e. more than the fortnightly payment available for the HEAS, or the small lump sum) or larger 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 Queensland Reverse Mortgage today for a free discussion on how you can better meet your financial requirements in retirement.

Are you receiving the correct Age Pension Payments

Age Pension eligibility is calculated by a means test assessment.

Both income and assets are assessed by Centrelink/DVA in order to determine eligibility and payment amounts.

The current maximum age pension payments are

Single $1064.00 per fortnight

Couple $802.00 each per fortnight

Income assessment

Recipients are able to earn $204.00 per fortnight for singles ($360.00 for couples) before a reduction can be applied to payments. Payments are reduced to zero when annual income reached $60,632 for singles and $92.768 for couples.

Assets assessment

Home-owners ca have a maximum of #01,750 assessable assets ($451,000 for a couple) before pension payments are reduced. Payments are reduced to zero when assessable assets reach $656,000 for a single ($986,500 per couple)

Applicants who fail the income test for any pension payment may qualify for the Commonwealth Seniors Health Card if the income is between $60,632 and $90,000 for a single. ($144,000 combined income for a couple)

Are you receiving your correct payments?

 

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Reverse Mortgage and Age Pension Entitlements

Many older Australians value their age pension payments. For the majority of recipients, the use of a reverse mortgage will have no effect on current entitlements.

Each age pension recipient is assessed on both their assets and income to determine their pension payment.

Maximum assets for Full pension

From 21 September 2021, allowances and full age pensions reduce when your assets are more than the limit for your situation.

Your situation Homeowner Non-homeowner
Single $270,500 $487,000
A couple, combined $405,000 $621,500

Maximum assets for Part pensions

From 21 September 2021, part pensions cancel when your assets are more than the limit for your situation.

Your situation Homeowner Non-homeowner
Single $593,000 $809,500
A couple, combined $891,500 $1,108,000

With a Reverse Mortgage, up to $40,000 is exempt from the assets test for up to 90 days, so the money needs to be spent within this time limit to avoid it becoming an assessable asset. If $50,000 is used for home repairs/maintenance on the principle place of residence, (an exempt asset), the monies spent will not be included as an asset. If the $50,000 is to pay for a new car, the value of that car then becomes a non-deemed asset.

Advisers are required to have a discussion with potential borrowers about future needs and many discussions lead to having a Line of Credit structure into the loan facility to meet any future needs, if and when they may occur. From an age pension perspective, it is important to know that a Line of Credit is not regarded as an asset.

 

 

 

Assessable income on financial assets

The Government has amended deeming rates from 1st May 2020 (and current as at 1 November 2021).

Situation Deeming rate
Single Lower rate: 0.25% on the first $53,000 of your investment assets, plus
Upper rate: 2.25% on your investment assets over the amount of $53,000
If you are a member of a Couple

where at least one of you gets a pension

 Lower rate: 0.25% on the first $88,000 of your combined investment assets, plus
Upper rate: 2.25% on your investment assets over the amount of $88,000

 

Centrelink is the ultimate source for determining age pension entitlements, but an adviser from QRM will assist potential borrowers with basic information about their qualifications.

It is important to ensure age pension recipients regularly update their information with Centrelink. In the first 3 months of 2020, our advisers have met 3 clients whose details have not been updated to reflect their circumstances, and have missed out on between $16,000 and $30,000 over the past 3 years.

 

Are you eligible for the full age pension?

From 20th September 2021, the full age pension is $967.50 p/f for a single and $729.30 each per couple.

We recommend recipients check their payments to reflect their current asset and income position.