Australian Government Rolls Out Universal Reverse Mortgage Plan

The Australian government has proposed a wide-ranging reverse mortgage plan that would make an equity release program available to every senior over the age of 65.

Previously restricted to those who partially participate in the country’s social pension program, the government-sponsored plan will extend to any homeowner above the age cutoff, according to a report from Australian housing publication Domain.

Under the terms of the government-sponsored plan, homeowners can receive up to $11,799 each year for the remainder of their lives, essentially taken out of the equity already built up in their homes. Domain gives the example of a 66-year-old who can receive a total of $295,000 during a lifetime that ends at age 91.

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As in the United States, older Australians have a significant amount of wealth tied up in their homes; the publication cited research showing that homeowners aged 65 to 74 would likely have to sell their homes in order to realize the $480,000 increase in personal wealth the cohort enjoyed over the previous 12-year span.

In fact, the Australian government last year attempted to encourage aging baby boomers to sell their empty nests to free up the properties for younger families. Under that plan, homeowners 65 and older could get a $300,000 benefit from the government, a powerful incentive in a tough housing market for downsizers — and in a government structure that counts income against seniors when calculating pension amounts.

“Typically, older homeowners have been reluctant to sell for both sentimental and financial reasons,” Domain reported last year. “Often selling property is costly, and funds left over after buying a smaller home  could then be considered in the means test.”

But the baked-in reverse mortgage benefit represents a shift toward helping seniors age in place instead of downsizing. The Australian government’s “More Choices for a Longer Life” plan also expands in-home care access by 14,000 seniors, according to the Financial Review, while boosting funding for elder physical-fitness initiatives and other efforts to reduce isolation among aging Australians.

The reverse mortgage plan will offer interest rates of 5.25%, which Domain noted is less than most banks, and will cost taxpayers about $11 million through 2022. Loan-to-value ratios are calculated to ensure that the loan balance can never exceed the eventual sale price of the home.

Written by Alex Spanko

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  • >>Loan-to-value ratios are calculated to ensure that the loan balance can never exceed the eventual sale price of the home.

    That’s interesting … if we knew that number, we wouldn’t be in the mess we’re in now. I wonder what their Principle Limit looks like, compared to ours.

    • It sounds from the article like they’re forcing everyone into a tenure plan that caps <$1,000, so it sounds less flexible than HECM and also significantly lower PLFs. If HECM only offered tenure payments there would be far less HECMs originated and HUD would be far less likely to see significant losses in the MI funds on the program in my opinion.

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