The impact a Reverse Mortgage may have upon your eligibility for the Aged Pension will depend on individual circumstances, and there are a number of important factors to consider. It ultimately depends on the purpose, and how you use the money from a Reverse Mortgage.  There are three ways you can take Reverse Mortgage funds:

1. Money taken as a lump sum

If the money is taken as a lump sum and spent on an asset that is assessable by Centrelink, such as a car, the value would count towards the asset test of the pension. This would also combine with your other assets (not including the value of your home) which could take you over a certain threshold and reduce your pension.

From 1 July 2018, the threshold where pensions begin to reduce is when your assets amount to more than the following.

Under Centrelink rules, if you draw a lump sum from a Reverse Mortgage, up to $40,000 is exempt from the assets test for up to 90 days, so the money needs to be spent within this time limit to avoid it becoming an assessable asset.

Any money drawn down is immediately subject to deeming by the Centrelink income test until you spend it. So for example, if you draw down $40,000, it will be deemed to be earning 1.75% (around $27 per fortnight). Single home owners can earn $172 per fortnight without affecting their pension, while for home owning couples, the amount is $304. If you purchase an asset that produces income, such as shares or an investment property, any derived income would be assessed as part of the income test.

Finally, if the Reverse Mortgage lump sum is spent on a non-assessable asset, such as home improvements or a holiday, then the amount would not be assessed under the income or assets test.

2. Money taken as an ‘income stream’

If the loan is taken as a regular income stream to spend on living expenses or non-assessable assets, then it would be unlikely to affect your pension. It is not counted as ‘income’ by the income test and, if spent quickly on bills and lifestyle, should have no effect on your age pension. But if the money builds up in your bank account, it is subject to the Assets Tests (see above).

3. Money in reserve (like a line of credit)

Funds that are available to you for the future, but which are not yet drawn down, are not assessed under either the income or assets tests for Centrelink purposes.

(NOTE: some lenders have in the past offered Reverse Mortgages with an ‘offset account’ attached. Funds within an offset account MAY be deemed an assessable asset. If unsure, please consult with Seniors First). 

The information in this fact sheet is for general information purposes only. It does not constitute Financial Advice, and should not be relied upon as such. While Seniors First used information published by Centrelink in developing this fact sheet, it is neither approved by Centrelink, nor attempting to speak on behalf of Centrelink. Rules and figures change, as do individual circumstances. Seniors First strongly encourages those seeking a Reverse Mortgage to speak to a Financial Information Services (FIS) officer at Centrelink directly about the effect (if any) a Reverse Mortgage may have on their pension entitlements.     

10 Comments

  1. Margaret S-Reply
    March 18, 2020 at 11:15 am

    I’ve retired. I put all my super into income account and draw from it for living and mortgage repayments. My husband is still working but is a low income worker. With the stock market crashing due to the COV 19 MY super won’t be enough to pay off the mortgage. Is it better for me to pay off the mortgage with remaining super funds. I have an off set bank account paying interest only.

    • March 31, 2020 at 7:50 pm

      Hi Margaret, thanks for your comment. What you’re asking is a financial advice question, which we are not licensed to provide (we are credit advisers). The CoronaVirus is playing havoc with retiree share portfolios and super accounts right now – it is a big problem. I would suggest you contact your super fund or financial adviser to get some advice on this. What I can tell you is that you may be eligible to refinance the current mortgage with a reverse mortgage. So if you get stuck with a small debt still on the house after you both stop working it is possible to pay that out so that you don’t need to make regular monthly repayments any more, thereby easing your cash-flow in retirement. Feel free to call our office to chat about this. I wish you and your husband all the best in these challenging times. Regards, DM

  2. caerine-Reply
    March 31, 2020 at 2:20 pm

    Hi I am interested in taking out a reverse mortgage on a house that I own outright in my personal name in southern highlands. If I took out say 200,000 what would be the interest and pay back terms please?

    • March 31, 2020 at 7:38 pm

      Hi Caerine, the amount you can release via reverse mortgage loan depends on a) your age and b) your home value. If for example you were 70 and the house was worth $800,000, then you could feasibly be approved for a reverse mortgage loan of $200,000. I will have one of our brokers contact you tomorrow with more info. Best regards, DM

  3. March 31, 2020 at 3:36 pm

    Thanks Darren
    The reason I was making an enquiry for RM products available is if we decide to downsize.
    We have a current RM with Bankwest, $135,000 which we just draw down on as required, your item 3 ]. We have a balance of $11,500- Which we have to settle upon sale However if we move we will loose this facility and BW will not transfer to another property and of course the product has been withdrawn by them.
    We are not quite ready for such a move at the moment but we are thinking medium term plans for the future. We are both retired , we get full Centrelink pensions as well as Annuity Pensions with First Choice. Is there any way we could test the water and pre qualify before we jump from the frying pan in to the fat, so to speak. Kind Regards
    Keith

    • April 1, 2020 at 8:56 am

      Hi Keith, there is no fast answer here. It is not possible to get an advanced ‘approval in principle’ for a Reverse Mortgage, as approval is heavily contingent on the security property and valuation. Having said that, as long as the new home is a standard residential property in a metro area, or approved regional centre, then it is possible to part-fund the purchase with through a reverse mortgage, along with your sale proceeds from the current home (subject to loan approval). This means of course you would need to sell the existing home first. Before you take any decision, please call our office so we can give you more detail. And note the information in this comment is accurate as of today’s date, but lender policies regularly change, so you should always check first. Regards, DM

  4. Tania B-Reply
    March 31, 2020 at 5:46 pm

    Hi,
    My husband and I applied for a reverse mortgage a few years ago but it was not approved because the land that the house is on is zoned commercial. I am making inquiries now to see if there have been any changes to the rules in the last few years that would allow us to apply again.

    The house on the land is our primary ( only ) residence.
    The valuer general has assessed the property as residential. The reason given is that the best and highest value use for this block is residential. It is not suitable for commercial use.
    The land rates are charged at the residential rate.
    For the DA approval to build the dwelling, we had to show it was a business. so we use one room in the house as a BnB.
    The house/land is located at the end of a no through road and is surrounded by residential dwellings.
    The land was part of a larger block which we subdivided. The original block faced the main street and was zoned commercial. We needed to do this to clear debts arising from the GFC. Because the original block was zoned commercial the newly created block was automatically zoned commercial. We, and the council looked at every possible option to rezone the block as residential. All the options were either too expensive or would take far too long and there was no real benefit to be gained by going down that path. The one exception being that we could not get access to a reverse mortgage.
    We have a first mortgage on the house for $50,000 provided by our solicitor. The house would now be worth over $500,000. My husband is 89 this year and we would like to clear the debt on the house.
    Would you kindly let me know if it is likely that an application would be successful.

    Kind regards
    Tania B

    • April 1, 2020 at 8:07 am

      Hi Tania, regrettably I still don’t think your property will be eligible. Reverse mortgage lenders do not take properties zoned as commercial. In addition, they generally do not accept properties that have been adapted, or are being used, as a ‘BnB’. These lenders want conventional residential properties as security because the resale markets are more established and the valuations more resilient in downturns. Sorry we can’t help.

  5. Y lotzof-Reply
    March 31, 2020 at 5:49 pm

    Hi
    Interested in this to pay off our mortgage
    What sort of percentage of the equity in your home do you take

    • March 31, 2020 at 7:33 pm

      Hi there, it depends on your age. The reverse mortgage lenders allow you to release more equity, the older you get. I will arrange for one of our broker team to contact with more info. Regards, DM

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