From the start of next year, the interest rate on the Government’s reverse mortgage, the Pension Loan Scheme, will be cut from 4.5 per cent to 3.95 per cent.

The Government confirmed the rate reduction in its Mid-Year Economic and Fiscal Outlook, building on changes to the scheme in the May Budget.

From 1 July next year, the scheme will include a no negative equity guarantee, which means that borrowers can never owe more than the value of their property. This brings the terms of the Pension Loan Scheme into line with private sector reverse mortgages.

Another change that will be introduced next year is access to lump sums. Eligible borrowers will be able to receive a lump sum equal to 50 per cent of the maximum age pension. 

Two advances totalling up to the cap are permitted in a year, currently worth $12,385 for singles and $18,670 for couples.

For people receiving a full-rate age pension, the Pension Loan Scheme provides an annual income boost worth up to 50 per cent of the pension. 

For self-funded retirees receiving no age pension, the Pension Loan Scheme provides an annual income boost worth up to 1.5 times the full-rate age pension.

Earlier this week, the Minister for Families and Social Services Anne Ruston announced that the scheme would be rebranded the Home Equity Access Scheme.