The Pension Loan Scheme – New Changes Announced

Are you searching for the best options to enhance your standard of living after retirement? It is necessary to think about life after retirement and plan for it. Proper planning can certainly make you financially secure even after retirement. If you are already a retiree looking for extra money to supplement your retirement income, you can consider the pension loan scheme in Australia. It is interesting to know that the federal government will reduce the rates on the pension loan scheme, which is a relief for many retirees.

A Government Run Reverse Mortgage Scheme

The pension loan scheme of the Federal Government could be a great option for retirees to boost their income. However, aged citizens of the country do not need to be a pensioner to access the pension loan scheme. It is a government-run reverse mortgage scheme, and you can borrow money against your home. Aged people can draw down payments against home equity and pay back once they sell their house. Retirees with a home of their own but do not have sufficient cash find it a good option to support their day-to-day expenses.

What is Home Equity Access Scheme?

Many people got confused about what a home equity access scheme is. It is the new name of the Pension Loan Scheme. The senior citizens in the country have been fighting long for a better pension loan scheme. Now, this scheme has been rebranded with low-interest loans for pensioners. Most people in the country have their own home, and they prefer to stay in it as they age. But many of them do not have extra income to lead a comfortable life. In fact, they are rich with their assets but do not possess sufficient cash. Such aged people with their own homes can generate additional income using their home equity. They could use this scheme for:

  • Meet their income shortfalls during any financial crisis
  • Increasing their existing income from employment, investments, and pension for a much better and comfortable lifestyle post-retirement
  • Supporting their family members in their hardship
  • Fund health care services like ongoing residential care services

Pension Loan Scheme to Retirees

The government of Australia offers the Pension Loan Scheme to retirees to top up their retirement income. It is available for those who plan to access the home equity. It was first introduced in 1985 and later modified in 2019 to make more people eligible for the scheme. DVA or Centrelink administers this initiative of the Federal Government. It operates the same way as a reverse mortgage. In this scheme, retirees will get pension loans in Australia against the equity they have in their homes.
One of the great advantages of this equity access loan is that borrowers need to pay interest but not require regular repayments. Instead, you add it to the loan amount. And they can remain in their homes until its sale. In most cases, they live in their homes till death.

Who is Eligible for Pension Loan Scheme?

The home equity access scheme has been for nearly 30 years, but very few people took advantage of it till 2010. However, the Turnbull Government increased the eligibility criteria in 2018 and allowed even the full Age Pensioners and self-funded retirees for this scheme. From 1st July 2019, this scheme is available to all senior citizens in Australia who meet residency requirements and Age Pension Age criteria. If you own real estate in the country, you can apply for the pension loan scheme.
Many retirees are accessing home equity under this scheme. The maximum loan amount you can take is based on your age and the home equity you possess. If you plan to change the maximum loan amount, you can make a written request to Services Australia at any time. But it must sign by those who have ownership of the property.

Substantial Drop in the Home Equity Loan Rates

The home equity loan rates were not competitive, and not many people were interested in the scheme. In addition to that, the government was not interested in promoting this scheme. The equity loan rates were high for many years. It was as high as 5.25% for several years and later reduced to 4.5%. Unfortunately, this rate was also higher than many commercial interest rates, and not many retirees got attracted to it. However, considerable changes have been made to the Home Access Equity Scheme on 15th December 2021. And a substantial drop occurred in the pension loan scheme interest rate. The rate was dropped to 3.95% from 4.5%, which attracts many national seniors.

Things to Consider Before Applying for the Home Equity Access Scheme

The current interest rate of the Pension loan scheme is attractive and beneficial for retirees. However, it will be wise to check a few things before applying for the loan. This scheme allows you to live in your own house till your death. But, the outstanding loan amount at the time of your death, if there is any, will be recovered from your property. And its interest will continue to accrue as usual until the loan gets repaid. Consider the following things before applying for pension loans in Australia are:

  • Your present and future financial situation
  • How do you repay the loan
  • The impact of the compound interest on the home equity loan

Many retirees in Australia do not know how to boost their income for a comfortable life and are unaware of the Australian pension rates and pension-related schemes. The Home Equity Access Scheme might be a relief for them as it helps them draw home equity loans to support their retirement income. Home equity loan rates were not competitive and attractive earlier. But, the interest rate has been dropped from 4.5% to 3.95%. Many senior citizens of the country got attracted to the new interest rate. Seek financial and legal advice before applying for a loan under this scheme.