Reverse mortgages are on the rise

The 2018 Federal Budget expanded the Pension Loan Scheme (PLS) allowing retirees to obtain a state-run reverse mortgage. This allows retirees to boost their retirement income by up to $17,800 for a couple without impacting on their eligibility for the pension or other benefits.

The changes appear to have done the job, with thousands of people flocking to the PLS, outpacing the government’s own expectations:

“From July last year, the scheme was expanded so that almost anyone of pension age is able to borrow against the value of their house or investment property,” writes Herald reporter John Collett. “Administered by Centrelink, the PLS had more than 3100 participants in the 2019-20 financial year, compared to fewer than 800 in the same period a year earlier,” according to reference figures.

The level of adoption being seen in Australia is more than twice what the government expected it to be when it announced the PLS expansion in the unveiling of the federal budget two years ago…

“I think it is a great scheme,” says Brendan Ryan, a financial adviser and founder of Later Life Advice based in Manly, New South Wales just outside of Sydney. “For older Australians already receiving an Age Pension, the process of applying for [the scheme] is quite straightforward and processing times are getting shorter.”

Services Australia explains the PLS as follows:

A scheme that lets older Australians get a voluntary non-taxable fortnightly loan from us. You and your partner may use this to supplement your retirement income.

You can choose the amount of loan you get but we don’t pay the PLS as a lump sum.

You must repay the loan and all costs and accrued interest to the Commonwealth. You can make repayments at any time.

You can ask us to stop your loan payments at any time…

You must meet all of the following. You:

  • or your partner are Age Pension age
  • get or are eligible to get a qualifying pension
  • own, or your partner owns, real estate in Australia that you can use as security for the loan
  • have adequate and appropriate insurance covering the real estate offered as security
  • aren’t bankrupt or subject to a personal insolvency agreement.

The only downside to this scheme is the interest rate, which at 4.5% seems rather high in the current low mortgage rate environment:

The federal government should probably reduce it below 4% given the decline in market mortgage rates and the ultra-low borrowing rates on government bonds.

Unconventional Economist


  1. The federal government should probably reduce it below 4% given the decline in market mortgage rates and the ultra-low borrowing rates on government bonds.

    Been saying this for ages. The scheme will really take off fi the rate is in the low 3s (while still being very profitable for the govt).

    • ErmingtonPlumbingMEMBER

      It should always be below the Cash rate!
      What is it at the moment? 0.10%. isn’t it.
      The usury we get from the Banks is bad enough. But The bloody Govie!, should not be “making money” through gouging pensioners with compounding interest.
      What happens when the interest bill ends up exceeding the value of the property? Kick em ot into the street with no money leftover for a Nursing home pay in once dementia kicks in?

      • By then they’ll offer the, Maternal Heart of Eternal Peace and Compassion. Nothing complex, just a needle that fixes a problem of existence.

      • “What happens when the interest bill ends up exceeding the value of the property?”

        I think there might already be an LVR cap. But when rates are 0.1% as you suggest, compound interest for a 70 year is irrelevant.

      • Good comment. I believe that the debt can’t exceed the value of the property. The real problem is that even after people hit the assets test threshold, and no more principal can be added to the debt, the interest continues to snowball until the entire value of the family home is consumed. This wouldn’t be a real problem if the debt were at the cash rate.

  2. maybe the federal government is just pricing in the risk, at 4.5%, of the liquidity of the collateral

  3. chuckmuscleMEMBER

    Good stuff. Agree about the rate, but nothing is perfect. At least with borders closed those $$ circulate inside the country, for the most part…

  4. MountainGuinMEMBER

    Unsure if it is a good scheme esp when considering the low benefits provided to the unemployed. Recipients get the pension, any superannuation is tax free, this income is not counted against their govt benefits and recipients all own homes.
    Some of these folk are not wealthy by any stretch of the imagination but until the unemployed get some additional help, not sure that providing older asset owning aussies more is the most critical need.

  5. Based on a $700,000 home appreciating at 3% per annum, after 30 years it would be worth $1.7m
    If a 66 year old accesses $472 p/f for the next 30 years, the debt would be $778,000 at the age of 96
    So much for losing all the equity