The Australian government’s reverse mortgage program – also known as the Pension Loans Scheme (PLS) – has grown fivefold since its inception in the country two years ago, as more Australian retirees seek new ways to ease retirement cash flow while aging places in their current housing. That’s according to a story published recently by the Sydney Morning Herald.
“Only 768 people had accessed the program by the end of the 2018-19 fiscal year, but the number rose to 4,039 by the end of March of this year,” writes journalist John Collett.
Described as currently being “conservatively managed”, the Australian government will soon impose what it calls a “non-negative fairness guarantee” on the PLS, which appears to work the same way as the non-recourse function that does. part of most American variants of a reversal. mortgage loan, including the ubiquitous Home Equity Conversion Mortgage (HECM) program administered by the Federal Housing Administration (FHA).
The maximum cash that can be accessed under the PLS is currently 150% of the Australian government old age pension, and the loan proceeds can currently only be distributed in a series of ongoing disbursements. However, access to a lump sum payment model – up to two lump sum advances over any 12 month period, up to a total value of 50% of the maximum annual rate of the old age pension – will be available to borrowers of the same age. ‘here mid–2022.
It is not yet clear whether these new features, including both the lump sum disbursement model and the ‘no negative equity guarantee’, will be retroactively available to existing borrowers or will only apply to new borrowers, Collett reports.
According to Katja Hanewald, Hazel Bateman and Katie Sun of the School of Risk and Actuarial Studies at the University of New South Wales (UNSW), access to lump sum payments could increase the potential appeal of PLS to Australians more aged.
“This is because many retirees would like to make big purchases, like a new car, renovations or repairs,” he writes based on the UNSW data. “Figures cited by academics show that about two-thirds of PLS participants at the end of last year were full pensioners, with most of the rest partially retired. Adoption by self-funded retirees is relatively low.
However, the researchers also openly criticize a component of the PLS, including its variable interest rate of 4.5% which they deem too high, writes Collett.
“It’s lower than private sector reverse mortgages, but significantly higher than the record interest rates for regular homeowner mortgages,” he writes.
By the end of last year, reverse mortgage adoption rates had doubled in Australia, exceeding government expectations for the program introduced in the 2018-19 national budget.
Read it history at the Sydney Morning Herald.