Reverse Mortgage Loan Blog

Parents who use a reverse mortgage to lend funds to their children could face losing part of their pension on a technicality, said Louise Biti, head of technical services at Asteron.

“Children in a great deal of debt may place pressure on their parents to take out a reverse mortgage in order to help them financially,” Biti said.

She said assuming the parents have other assets and are over the threshold amount and used a reverse mortgage to lend to their children, they run the risk of transferring an ‘exempt asset’ into an ‘assessable asset’.

“Parents could potentially lose part of their aged pension because the ‘gift’ they provide to their children could count as an asset for five years and could be counted against their income under the deeming rules,” she said.

Should the parents provide the money in the form of a loan, Biti said, it is counted as an asset as long as the loan is outstanding and therefore is subject to deeming under the income test.

She added if the loan could not be paid, parents may have to go through legal channels to ensure the debt is wiped from their Centrelink record.

“If the parents know there is no way of you ever recovering the debt they could be faced with a situation where they have to take their son to court which could create some nasty family scenarios,” she said.

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