Types of loans for pensioners

As Australia’s leading reverse mortgage provider, Heartland is often asked about the types of loans available to pensioners and other equity release products that are offered in Australia, such as Home Reversion and the Federal Government’s Home Equity Access Scheme (previously known as the Pension Loans Scheme).

Here’s a summary of how these loans and other equity release options differ from one another.

Reverse mortgages

A reverse mortgage is like a normal home loan that’s been designed for the needs of people in retirement. It can allow you to release the equity in your home without having to sell, helping you live a more comfortable retirement

Importantly, reverse mortgages are subject to the National Consumer Credit Protection Act (NCCP), which means there are a number of borrower protections and safeguards in place provided loan obligations are met, such as lifetime occupancy and a no negative equity guarantee.

Depending on the provider, you may also be able to take out an equity protection option, offering you further assurance and peace of mind.

One of the key benefits to a standard reverse mortgage is flexibility, as you can tailor the loan to suit your retirement needs. There are many drawdown options to choose from (lump sum, regular advances for up to 10 years, or cash reserve ‘like a line of credit’) and your loan can be used for a range of purposes, such as consolidating debt, home improvements, day-to-day expenses, upgrading your car, traveling and in-home or residential aged care.

Interest is added to the loan monthly and is only repayable once you move permanently from your home. However, you are free to make repayments at any time.

A reverse mortgage is a great option for someone who would like flexibility with their funds, the ability to redraw voluntary repayments, and continue to fully own and live in their own home for as long as they choose.

Centrelink’s Home Equity Access Scheme (previously known as the Pension Loans Scheme)

The Federal Government’s Home Equity Access Scheme, offered by Centrelink, is similar to a reverse mortgage in that it helps retirees release equity from their home without having to sell. However, there is no requirement to follow the National Consumer Credit Protection Act (NCCP), meaning borrower protections are not compulsory requirements for the product.

The Home Equity Access Scheme allows you to borrow up to 1.5 times the maximum fortnightly age pension. The total amount you can borrow over time is calculated based on your age component amount, as well as the value of your property. It is important to note that if the age pension changes, so will your entitlements under the Home Equity Access Scheme. For current age pension figures, visit the the Service’s Australia website.

As well as a fortnightly income top up, you can request up to two lump sum payments per year at 50% of the age pension, and the difference between the lump sum(s) and maximum potential loan can be paid as fortnightly instalments.

The Home Equity Access Scheme could be a good option for those who are eligible and need a small income top-up to assist with retirement needs.

Home Reversion

Some people think home reversion is a type of loan for pensioners, however it is different type of equity release where you agree to ‘sell’ a portion of your property to a provider or investor in return for a lump sum payment. Any future growth in property value shared based on the percentage agreed to be ‘given’ to the provider.

It is important to understand that the payment received may be lower than its current market value. For example, you could ‘sell’ 65% of the future value your home but only receive somewhere between 25% and 40% of the value up front, depending on your age. It depends on the terms of the provider.

Home Reversion is also considered a property transaction and is not subject to National Credit Consumer Protection Acts (NCCP). Protections in place are dependent on provider.

A Home Reversion could be a good option for those that want to access their home equity without accumulating any debt, or who do not want a mortgage taken out over their home.

However, there is limited availability (based on location) for this product compared to a reverse mortgage or the Home Equity Access Scheme, which are both available in most locations across Australia.

Here is an outline of some of the key differences between these general products. This information may vary depending on the provider.

  Reverse mortgages (dependent on provider) Home Equity Access Scheme (previously known as the Pension Loans Scheme) Home Reversion
Type Loan Loan Property transaction
Youngest Age 55 or older* Between 66.5 or 67 (years depends on birthdate) 60 or older
Locations available All capital cities and major regional cities and centres Most locations Limited availability (main locations Melbourne and Sydney)
Loan/payment amount Minimum - $5,000

Maximum - Limited by LVR only
Up to 1.5 times fortnightly age pension (max), if pension is not already being received Based on age and portion you are looking to ‘sell’ of your home
Payment types Lump sum

Income stream (monthly, quarterly, or annually)

Cash reserve (like a ‘line of credit’)

Or any combination
Income stream (fortnightly only)

Up to two lump sums per year
Lump sum only
Loan repayments Not required until the end of the loan

Voluntary repayments can be made at any time

Must be repaid within 12 months of the borrower moving permanently from their home
Not required until the end of the loan

Voluntary repayments can be made at any time

Must be repaid when house is sold or within 14 weeks of the borrower passing away
Not applicable (not a loan)
Consumer protections Subject to the National Consumer Credit Protection Act (NCCP) Not subject to the National Consumer Credit Protection Act (NCCP), but from 1 July 2022 added a no negative equity guarantee Not subject to the National Consumer Credit Protection Act (NCCP)

*With a Heartland Reverse Mortgage, where one borrower is aged 60 or over and has a partner between the ages of 55 and 59 you may be able to access a loan on your owner occupied home.

An important decision

When deciding on a type of loan or equity release option for pensioners, one option may be more suitable for you than the others, depending on your situation and objectives.

We encourage anyone considering home equity release to do their own research, make use of the resources on our website, and speak to Centrelink, financial and legal advisers, friends and family.

Our customer care team are specialists in reverse mortgages. If you would like to discuss your options please feel free to call us on 1300 889 338 or email us at [email protected].

Information provided is accurate as at 13 March 2023 and may change from time to time.

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