Assessment of asset value of Home Equity Conversion loans and Reverse Mortgages 108-04100020

A couple owned their principal home valued at $600,000. They took out a Reverse Mortgage and received a lump sum payment of $335,000.

They used $335,000 to build a Granny flat in their child's yard.

When they move out of their former principal home, it becomes an assessable asset valued at $265,000. ($600,000 - $335,000) = $265,000.

They then rent their former principal home out. The rent they received is income.

They have paid more than the Extra Allowable Amount ($210,500 as of 1 July 2019) as the Entry Contribution for the Granny Flat, so they will be assessed as homeowners. They are not eligible for Rent Assistance.

The Reverse Mortgage is assessed under the Home Equity Conversion (HEC) rules because the property mortgaged was their principal home at the time of the transaction. The $335,000 is not assessed as income. The first $40,000 received is exempt from the asset test for 90 days.

A single pensioner accessed $200,000 through a Reverse Mortgage against their principal home. The pensioner remained in the principal home and used the $200,000 to purchase shares.

The full asset value of the shares is therefore assessable because the liability is secured against the principal home, not the shares.

A customer takes out a $600,000 reverse mortgage secured against their principal home, and receives / draws down $10,000 per month for 5 years.

Each $10,000 monthly payment drawn down is exempt from the assets test until spent or for a maximum of 90 days from the date received. The entire value of the payments is deemed from the date of receipt