Another kind of loan arrangement that has much in common with a reverse mortgage is provided by Centrelink.
Centrelink’s Pension Loan Scheme (PLS) allows a retired person on a part age pension to borrow modest amounts against the security of their home (or other property) at 5.25% per annum interest to subsidise their living costs. (Interest rate current as of November 2017).
The PLS is a limited scale and safe reverse mortgage.
The amount of the loan is limited to the difference between the full pension and the part pension, so in a way it’s a ‘top up’ facility. It’s paid fortnightly as part of the usual age pension payment process.
Not everyone is eligible. Persons who receive a full age pension are not eligible. And persons who fail both the assets test and the income test are not eligible. Interestingly, people who fail just one of these tests (and therefore do not receive any pension at all) are also eligible.
PLS loans are not that common, and it’s hard to see why. They make a lot of sense, and the relatively low cap, i.e. the difference between the actual pension and the full pension, means it’s unlikely age-pensioners will be evicted from their homes by Centrelink.
If a married couple’s client’s part pension was say $5,000 and their full pension $23,160 the amount of the loan would be capped at $18,160 a year or about $700 a fortnight. If their home is worth say $700,000, and is otherwise unencumbered, it is unlikely that the loan will ever catch up with the value, or even come close.
The extra $700 a fortnight will make all the difference to your client’s day-to-day quality of life and allow them to avoid selling their home or other quality assets.
Let your older clients know about the Centrelink PLS. It’s a great idea and awareness of it can help reduce the anxiety of ageing.
You can learn about the Centrelink PLS here: Centrelink Pension Loan Scheme.