Retiree reverse mortgage system rates to be reviewed
Retirees who use a federal government reverse mortgage program to boost their incomes are likely to get an interest rate cut after Treasurer Josh Frydenberg announced a review of the system.
Mr Frydenberg on Wednesday said the 5.25 per cent rate charged for reverse mortgages under the pension loans scheme would be reviewed following the sharp falls in mortgage rates in the private sector.
The scheme, set up in 1985, enables retirees to apply for an income stream of up to 1.5 times the maximum rate of the age pension. A person on the full pension and supplements of about $24,000 could boost their income by $12,000 annually.
The scheme has struggled to attract users and Mr Frydenberg recently broadened its criteria.
People who are at least of age pension age, own their home or an investment property outright and have enough insurance over the building can now access the system.
But the 5.25 per cent interest rate has not changed despite tumbling commercial rates. While the government scheme is still below most private sector reverse mortgages there are some institutions offering lower interest rates.
The government has urged commercial banks to pass on in full the recent cuts in official interest rates while holding steady its own reverse mortgage rate. Mr Frydenberg said the scheme enabled retirees to boost their retirement income by unlocking the equity they had built up in their home.
"The current interest rate of 5.25 per cent for the pension loan scheme is lower than the rates charged by the private sector," he said.
"Typical interest rates for commercial reverse mortgage products currently range from around 6.25 per cent to 6.5 per cent per annum."
"The government continually monitors the appropriateness of the interest rate for the pension loan scheme to ensure the rates are reflective of current market conditions."
While the government seeks to help retirees, it is playing down expectations its review of the retirement income system will lead to substantial change.
Finance Minister Mathias Cormann said the retirement income review would not lead to "any change".
Senator Cormann said the inquiry, which is the first combined review of the pension, superannuation and housing for older Australians in 30 years, will only present a fact base.
"This review will not lead to any change," he said. "It will not lead to any policy change."
Senator Cormann said it was time to let reforms to superannuation settle and said the government had no plans to change the legislated increase in compulsory super from 9.5 per cent to 12 per cent by 2025. "
Original article: https://www.smh.com.au/politics/federal/retiree-reverse-mortgage-system-rates-to-be-reviewed-20191023-p533kp.html