Reverse mortgage loan scheme for elderly extended in Federal Budget

The federal government is offering homeowners over 65 the possibility of a small reverse mortgage.

While tapping the equity in their homes would be seen as a last resort measure, the scheme offers $11,799 per year initially for part-pensioners.

But under the extended scheme anyone over the retirement age can now access equity in their homes without selling, as part of a $258 million package aimed at helping older people to better plan for a "healthy, independent, connected and safe" life in retirement.

There is an interest rate of 5.25 per cent on the loans, considerably below the commercial rates on reverse mortgages which are currently between 6.3 per cent and 6.4 per cent. 

The Pension Loans Scheme was introduced in 1997. 

The measure, which was leaked before last night's Federal Budget, is set to cost $11 million over the next four years, according to the budget papers.

About 1.8 million age pensioners own their home in Australia, according to the budget papers, including 1.1 million full pensioners and 700,000 part-rate age pensioners.

The scheme will attract attention from the elderly with their wealth tied up in property while cash-poor.

Under the new plan, if a 66-year-old took up the proposed offer and lived until 91, he or she could receive a total of $295,000 worth of ongoing payments which would simultaneously be removed from their equity in their home.

Retirees on a full age pension as well as fully self-funded retirees will be able to use equity in their homes to increase the maximum fortnightly income stream to 150 per cent of the age pension, which is about $23,000 a year for individuals.

Last year Domain noted there are only a few reverse mortgages on offer.

It advised Bankwest Seniors Equity Release Home Loan charges 6.27 per cent and up to the lesser of 25 per cent of the value or $250,000.

CBA's Equity Unlock for Seniors charges 6.37 per cent, and the maximum loan ranges from the lesser of 20 per cent of value or $275,000 for those aged 65 to 69, up to 40 per cent or $450,000 for those 85 and over.

Toowoomba-based Heritage Bank's Heartland Finance Reverse Mortgage Home Loan charges 6.19 per cent, and offers up to 35 per cent at age 80.

P&N Bank, the W.A. bank once known as the Police & Nurses credit union, charges 6.24 per cent and offers up to 35 per cent of the home's value.