National Seniors Australia (NSA) has requested a review of the Pension Loans Scheme (PLS), citing the high-interest rate is too high and not in sync with the record low official cash rates.
NSA is a lobbying group that represents more than 130,000 retirees in Australia.
In the group’s pre-submission, it asked the Treasury to reduce the interest charged on the PLS, which is a reverse mortgage loan sponsored by the federal government.
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According to NSA, the current PLS rate of 4.5% is too high for pensioners who need to tap into their home equity to fund their retirement.
“Unfortunately, while the PLS is a good idea, it has been poorly promoted and has an unattractive interest rate,” NSA said. “This rate is especially off putting, given record low interest rates.”
What is the Pension Loans Scheme?
The PLS is a home equity program backed by the Australian government that allows pensioners to unlock a portion of their real estate property to boost their retirement income.
This ‘government reverse mortgage’ is similar to the home equity loan offered by Seniors First because it also allows access to home equity to help “asset-rich, cash-poor” retirees.
But many retirees choose private reverse mortgages because the PLS don’t pay lump sum, and you may only use the proceeds as income stream bundled to your pension.
Home Care Loans Scheme
On top of slashed rates, NSA is also calling for the inclusion of the new “Home Care Loans Scheme” in the 2021 budget.
The new scheme will allow pensioners to use the loan proceeds to pay for aged care at a cheaper interest rate compared to the current scheme.
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This suggestion is commendable because many retirees are using reverse mortgages to fund age care packages.
In the current PLS scheme, seniors may not use the proceeds for important aged care costs such as the Refundable Accommodation Deposit (RAD).
RAD is an upfront payment to the residential aged care home that ranges between $300,000 and $400,000.
Growing Demand for Reverse Mortgages
The call from the NSA suggests that there is a growing demand for financing options to help older Australians live a comfortable retirement.
And with the effects of the COVID-19 to both global and domestic economy, many pensioners are looking into available options.
If you have any questions about reverse mortgages, please feel free to leave a comment below or call Seniors First on 1300 745 745.