The Australian Government’s Reverse Mortgage Lending Program, also known as the Pension Loan Program (PLS), has grown fivefold since its inception in the country two years ago as more Australian retirees seek new ways to ease the cash flow of retirement in an aging environment. place in their existing homes. This is according to a story recently published by the Sydney Morning Herald.
“A total of 768 people gained access to the scheme at the end of the 2018-19 fiscal year, but by the end of March this year that number had grown to 4,039,” writes reporter John Collette.
The current Australian government, which is currently described as “conservative governance,” will soon impose on the PLS what it calls “no negative equity guarantee,” which appears to operate in a similar manner to the non-recourse function that is part of most American options. reversible mortgage, including the Federal Housing Administration (FHA) Housing Mortgage Lending Program (HECM).
The maximum cash that can be received under the PLS is currently 150% of the Australian Government’s Majority Pension, and the loan is currently only disbursed through a series of ongoing payments. However, access to the lump sum model – up to two lump-sum advances over any 12-month period for a total of up to 50% of the maximum annual retirement pension rate – will be available to borrowers by mid-2022.
It is not clear whether these new features, including a lump sum model and a “no negative equity guarantee,” will be retroactively available to existing borrowers or only apply to new borrowers, Collett said.
Access to lump sum payments could increase the potential attractiveness of PLS to older Australians, according to Katie Hanewald, Hazel Bateman and Katie Sun of the University of New South Wales (UNSW) School of Risk and Actuarial Research, Collette said.
“This is because many retirees would like to make major purchases, such as a new car, home renovation or renovation,” he writes based on UNSW data. “The figures cited by scientists show that about two-thirds of PLS participants at the end of last year were full-fledged retirees, and most of the rest were incomplete retirees. The coverage of self-financed pensioners is relatively small. ”
However, the researchers also openly criticize the PLS component, including its variable interest rate of 4.5%, which they believe is too high, Collette writes.
“This is lower than private sector reverse mortgages, but significantly higher than the record low interest rates for conventional mortgages,” he writes.
Late last year, reverse mortgage use rates twice in Australia, exceeding government expectations for a program that was included in the national budget for 2018-19.
Read story in the Sydney Morning Herald.