What is the Pension Loans Scheme?



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The Pension Loans Scheme allows people who are at the age pension age to apply for a loan from the government to supplement their retirement, effectively functioning as a reverse mortgage.

The loan is only available to people who who own property in Australia and are at the age pension age, or the partner of someone who is. While this loan was previously only available to part pensioners and self funded retirees, all age pensioners can now access the scheme following the 2018 federal budget, without affecting their pension entitlements.  

The loan is paid out fortnightly and can be up to 150% of the maximum fortnightly pension amount (up from 100% following the 2018 federal budget). The property can be the home you live in or an investment property.

The loan can be set up as a temporary loan or as an ongoing form of finance. Repayments can be made at any time or the debt can be left, including the accrued interest, to be recovered from the person’s estate.

Compounding interest is charged on the balance of the loan and calculated on a fortnightly basis. The total amount you can take out depends on your age, your partner’s age and the amount of equity you have in your property. You also will need to decide how much equity you want to keep in your property.

Importantly, the fortnightly payments are taken from the equity in your home and will reduce the amount of money you get from your home when you sell it. When entering in to a reserve mortgage of any description it is worth getting independent financial advice. If you take out a pension loan you will also need to talk to one of the government’s financial information service officers who can help you make an informed decision. This service is free.

Can the property be owned by a private company or trust?

Yes, you can secure the loan against property owned by a trust or a private company, if you control the entity.

What happens if I have more than one property?

If you own multiple real estate you can nominate which property you’d like to use as security.

What fees are involved?

There are a series of fees included in setting up the loan which need to be paid by the person taking out the loan. For example – your property will need to be registered with the Land Titles Office which will come at a cost.

Are loan payments tax-free?

Yes. Loan payments are not taxed.

Can I repay the loan instead of refunding the money when I sell my house?

Yes. You can repay your pension loan at any time. Alternatively, you can partially repay your loan, and then pay the remainder when you sell your home.

What is the interest rate?

The Department of Human Services currently charges 5.25 per cent on the loan balance, compounding on a fortnightly basis.

What happens if I move home?

According to the Department of Human Services website, you can transfer the loan to another property including your new home. Find out more about selling your home on their site. 

Can I use an overseas property as security?

No. You need to use property owned and located in Australia as security however you don’t have to live in the home. It can be an investment property.

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