A reverse mortgage enables homeowners aged 60 and above to borrow against the value of their home without having to sell, with repayment due when the property is sold.
No regular repayments are required on a reverse mortgage, but compound interest is added to the loan balance over time.
Reverse mortgages may affect Age Pension entitlements depending on how funds are used under Centrelink's assets and income tests.
Alternatives to reverse mortgages include downsizing, refinancing, family loans, or government support such as the Home Equity Access Scheme.
Most Australian reverse mortgages include a no negative equity guarantee, ensuring you'll never owe more than the value of your home when sold.
For many older Australians, the family home is more than a place to live; it's also their biggest source of wealth. With retirement lasting longer and everyday costs on the rise, a common question is: How can I use the value in my home without selling it?
One option is a reverse mortgage or a home equity release loan. This allows eligible homeowners, usually aged 60 and over, to unlock part of their property's value while continuing to live there. They can use the money towards daily expenses, home improvements, aged care costs, or helping family.
However, reverse mortgages may not be for everyone. Interest builds over time; they can reduce what's left in your estate, and they may affect your Age Pension. That's why understanding how they work, comparing them to other equity-release options, and knowing when to seek professional advice is important.
In this guide, we'll explain reverse mortgages in plain English, weigh them against other choices, and how you can explore your options.
How a reverse mortgage works
Here's what a reverse mortgage looks like in practice:
Your loan is based on your equity and age. The lender considers the value of your property and your age. The older you are, the more you may be able to borrow. For example, a 60-year-old might access 15–20% of their home's value, while a 75-year-old could unlock more.
No regular repayments required. You stay in your home and don't need to make ongoing repayments. The loan balance grows in the background, though you can choose to make voluntary repayments if you want.
Interest compounds over time. Because there are no mandatory repayments, interest is added to your balance each month. This means you pay "interest on interest," which can make the loan more expensive the longer you hold it.
The loan is repaid when the home is sold. The debt is cleared when you sell the property, move into aged care, or when your estate sells the home. Any remaining proceeds will be distributed to you or your beneficiaries.
Imagine your home is worth $600,000. You take out a reverse mortgage of $100,000 (around 16% of the property's value) at an interest rate of 6% per year, compounding monthly. If you don't make any repayments, the loan would grow to about $134,000 after five years. If your home also grew in value by 3% a year, it could be worth roughly $695,000 at the same point in time.
That means your equity may still increase, but it will be lower than if you hadn't taken out the loan.
Example:
Years | Loan amount (estimate) | Property value (estimate) |
|---|---|---|
0 | $100,000 | $600,000 |
5 | $134,000 | $695,000 |
10 | $180,000 | $805,000 |
This shows how interest increases the loan, but property growth can help mitigate its impact.
Types of home equity release in Australia
There's more than one way to access the wealth tied up in your home. Each option works differently, and the best fit depends on your age, finances, and goals.
Product type | How it works | Who it suits |
|---|---|---|
Reverse mortgage | Borrow against equity. No required repayments. Interest compounds. Pros: Stay in your home. Flexible use of funds. No regular repayments. Cons: Interest builds over time. Reduces inheritance. May affect Age Pension. | 60-year-old and older homeowners who want to stay in their home. |
Home reversion/ shared equity | Sell part of your home for a lump sum or income. Pros: No compounding interest. Access cash without repayments. Cons: Lose part ownership. Lower estate value for the family. | Homeowners willing to give up some ownership. |
Line of credit/ secured loan | Borrow against equity, with repayments required. Pros: Flexible access to funds. Familiar loan structure.
| Retirees able to meet repayments. |
Reverse mortgage
A reverse mortgage is the most widely used form of equity release in Australia. It allows homeowners, typically aged 60 or older, to borrow against a portion of their home's value. You don't make regular repayments. Interest is added to the loan balance over time. The debt is generally repaid when the property is sold, when you move into aged care, or when you pass away.
This option can suit older homeowners who want to stay in their home while unlocking funds for everyday costs, renovations, or care.
Home reversion or shared equity
Less common but worth knowing about, home reversion involves selling a portion of your home to a provider in exchange for a lump sum or an income stream. You still live in the property, but when it's sold, the provider takes their agreed share of the proceeds.
The key difference from a reverse mortgage is ownership. Instead of borrowing, you're giving up a portion of your home. That means no compounding interest, but a smaller share of the property for you or your family in the future.
Line of credit or secured loan
A line of credit works more like a traditional mortgage. You borrow against your home's equity and draw funds as needed. Unlike a reverse mortgage, you'll usually need to make regular repayments. This option may suit younger retirees or homeowners who are still comfortable making repayments but want flexible access to cash when required.
Eligibility and common loan features
Reverse mortgages are designed for older homeowners, and lenders set clear rules on who qualifies and how much can be borrowed. Here's what you need to know.
Age requirements. Most reverse mortgages are available to people aged 60 and over. Some lenders may start at 55, but 60 or older is the usual entry point. The older you are, the more of your home's value you may be able to access.
Minimum property value and LVR caps. Lenders usually require your home to meet a minimum value (commonly $200,000–$250,000, depending on the lender). They'll also apply a loan-to-value ratio (LVR) cap, meaning you can only borrow a set percentage of your property's worth.
Example:
Age | Maximum LVR (% of property value) |
|---|---|
60 | 15–20% |
70 | 25–30% |
80 | 35–40% |
These are examples only. The exact figures depend on the lender's policies and your personal circumstances, so it's important to confirm with your broker.
Security and loan structure. A reverse mortgage is still a loan, and it's secured against your property, meaning the lender places a mortgage on your title, just like a standard home loan.
How can borrowers access the funds?
Flexibility is part of the appeal. Depending on the lender, you might choose:
Lump sum: Upfront funds, often used for major costs like renovations or aged care.
Regular drawdowns: Ongoing payments (monthly or quarterly) to help cover living expenses.
Line of credit: Access funds when you need them, keeping interest lower if you only draw occasionally.
Costs, interest, and how the loan grows
Like any loan, a reverse mortgage comes with costs. Since you don't need to make repayments while living in your home, it's essential to understand how interest and fees can add up over time.
How does compound interest work?
Reverse mortgages charge compound interest. This means you pay interest not just on the original loan, but also on the interest added each month. Over time, the loan balance grows faster.
Think of it like a snowball rolling downhill. It starts small but gathers more as it goes. That's why planning and checking in with your broker regularly makes such a difference.
Indicative reverse mortgage rates in Australia usually sit between 6% and 8% per year (though this varies by lender and product). These rates are often higher than standard home loans, since no regular repayments are required. Always check the current rate with your lender or broker. Even small differences in rates can have a huge impact over time.
Alongside interest, lenders may also charge:
Establishment fee charged when setting up the loan.
Valuation fee to confirm the value of your property.
Legal fees for loan documentation and advice.
Ongoing fees such as monthly or annual account-keeping costs.
Discharge fee, which is payable upon loan closure.
These fees vary among lenders, so it's advisable to compare options before making a decision.
Let's walk through a simple scenario. Your home is valued at $500,000. You draw $100,000 through a reverse mortgage. The interest rate is 6% per year (indicative only, compounding monthly). You make no repayments for 10 years. After 10 years, the loan balance would grow to around $180,000.
Years | Loan amount (estimate) | Property value (estimate) |
|---|---|---|
0 | $100,000 | $500,000 |
5 | $134,000 | $580,000 |
10 | $180,000 | $675,000 |
In other words, while you originally borrowed $100,000, the total nearly doubled due to compound interest. If your home increased in value during that time, your equity may still have grown, but it would be lower than if you hadn't taken the loan.
Impact on Age Pension, Centrelink and tax
One of the first questions many older Australians ask is whether a reverse mortgage will impact their government benefits or tax obligations. The short answer is that it can, depending on how you use the money and your personal situation. That's why it's always best to double-check with Centrelink and get advice from a qualified financial adviser before making a move.
Age Pension and Centrelink
A reverse mortgage can affect the way Services Australia assesses your Age Pension. Here's how:
Assets test: If you take a lump sum and leave it in your bank account, it usually counts towards the assets test. This could reduce your Age Pension.
Income test: If you invest the funds and they generate income, that income may count under the income test.
Exemptions: Using the funds for home improvements, medical bills or aged care is often treated differently and may not impact your pension in the same way.
The key thing to know is that Centrelink looks at how you use the borrowed money, not just the fact that you borrowed it. However, before drawing down on a reverse mortgage, check with Centrelink:
How the assets test will treat the funds.
Whether the income test applies if you plan to invest the money.
If exemptions apply for your intended use (for example, renovations or aged care).
You can find detailed guidance directly on the Services Australia website.
Estate and inheritance
A reverse mortgage reduces the equity in your home. When the property is sold, either upon your move into aged care or after your passing, the loan balance and any accrued interest are paid first.
Whatever is left goes to you or your estate. That means your beneficiaries may inherit less than expected. For some families, this trade-off may be worthwhile if it improves the quality of life in retirement. For others, it sparks conversations about alternatives.
Most lenders in Australia also provide a "no negative equity guarantee," which means you'll never owe more than what your home sells for. Since 18 September 2012, all new reverse mortgage contracts have included a No Negative Equity Guarantee (also known as negative equity protection).
This safeguard means that when your home is sold, neither you nor your estate will ever owe more than the property's market value, even if the loan balance has grown beyond that.
In simple terms, this law protects homeowners and their families from being left with debt that exceeds the value of the home.
Tax considerations
Reverse mortgage payments are typically treated as loan advances, rather than income. That means you don't pay tax just for accessing the funds. Services Australia confirms that payments made under the Home Equity Access Scheme (HEAS) are a non-taxable loan.
For private reverse mortgages, the ATO notes that certain amounts received aren't counted as income for tax purposes. However, if you invest the money and earn returns, those earnings may be taxable.
Remember, tax outcomes depend on your personal circumstances. Always seek independent financial and tax advice before deciding how to use the funds.
For full details, visit the Australian Taxation Office (ATO) or Services Australia websites.
Important note: Aussie does not provide financial or investment advice. This information is general only and doesn't take into account your personal circumstances. Always seek independent financial, legal and tax advice before making a decision.
Pros and cons of reverse mortgages
A reverse mortgage can be a useful tool in retirement, but it comes with trade-offs. Knowing both the upsides and the risks can help you and your family decide if it's the right move.
Pros | Cons |
|---|---|
Stay in your home: You can unlock funds without selling up or downsizing, keeping the memories and community ties that matter. | Compounding interest: With no required repayments, interest compounds over time. The longer the loan lasts, the larger it becomes. |
Unlock extra cash: Cover everyday bills, pay for medical or aged care, or help family, all without having to sell your property. | Reduced inheritance: As the loan balance grows, there's less equity left for your beneficiaries. |
No regular repayments: Unlike a standard loan, repayments aren't required while you're living in the home. The loan is repaid when the property is sold. | Impact on Age Pension: Depending on how you use the funds, they may be counted towards Centrelink's assets or income tests, which could affect your payments. |
Flexibility: Choose how you access the money: lump sum, regular payments, or a line of credit. This makes it easier to tailor the loan to your specific needs, whether that's for renovations, living expenses, or care. | Fees: Establishment, valuation, legal and ongoing fees can reduce the overall benefit. |
Limits future borrowing: Because your home secures the loan, a reverse mortgage may reduce flexibility to refinance or access more equity later. |
Is a reverse mortgage the right choice for you?
It might make sense if you're 60 or older and most of your wealth is in your home, if you want to stay in your home but need extra funds for living costs, care, or renovations, and if you're fine with the idea that your estate may be smaller in exchange for more financial breathing room now.
It might not make sense if you want to preserve as much inheritance as possible for your family, if you're concerned about the impact on your Age Pension, or if you have alternative options available, such as downsizing, family assistance, or refinancing.
You might also be interested in: How to refinance to reduce debt and build equity faster
Alternatives to reverse mortgages
A reverse mortgage isn't the only way to unlock money in retirement. Depending on your goals, other options may give you more flexibility and control.
Downsizing or selling and renting
Selling your home and moving to a smaller place can generate a significant amount of cash. Some retirees also choose to sell and rent instead of buying again.
Pros | Cons |
|---|---|
Unlocks a large lump sum, reduces costs like maintenance and utilities, and may bring you closer to family or services. | You may need to relocate, selling costs apply, and ongoing rent could reduce your retirement income. |
You might also be interested in: Downsizing done right: A smart guide for empty nesters
Refinancing, redraw, or line of credit
If you still meet the income and serviceability requirements, a traditional refinance, redraw, or line of credit may be a suitable option.
Pros | Cons |
|---|---|
Often lower interest rates than a reverse mortgage, redraw only what you need, and it works best if you have a reliable income. | Requires regular repayments, which may not be suitable for retirees with limited cash flow. |
You might also be interested in: Refinancing your home loan to access equity
Family loans or guarantor loans
Some retirees turn to family arrangements for financial support. This could be a private family loan or a guarantor arrangement to help younger family members borrow.
Pros | Cons |
Keeps repayments within the family, may avoid higher commercial loan rates. | Can strain relationships if expectations aren't clear, and there's risk if repayment becomes difficult. |
You might also be interested in: Buying a home without family help? Here’s how.
Government and community support
Before borrowing, check to see if you're eligible for financial assistance. Programs may help with accessibility upgrades, energy efficiency, or other targeted needs.
Pros | Cons |
|---|---|
No loan required, some grants are non-repayable. | Usually limited in scope and may not cover bigger financial needs. |
You might also be interested in: Help to Buy scheme: Fast track homeownership
How to prepare before applying for a reverse mortgage
A reverse mortgage is a big financial step, so it pays to get organised before applying. Having the right documents, knowing the right questions, and running different scenarios can help you feel confident about your decision.
Lenders will require documentation to verify your identity, income, and property details. Having these ready can speed things up:
Property title: This shows proof of ownership.
Property valuation: Some lenders will arrange this, but it helps to have an estimate.
Identification: This may include your driver's licence or passport but is not limited to those.
Bank statements: Lenders typically request information for the past three to six months.
Proof of income or pension: This may include Centrelink statements, superannuation records, or other income documents.
When you meet with a broker or lender, dig into the details. The answers will help you compare products and avoid surprises:
What loan-to-value ratio (LVR) applies at my age?
How often is interest compounded?
Are rates fixed, variable, or a combination of both?
Is the loan portable if I move to a new house?
Can I repay early, and are there fees for doing so?
What are the upfront, ongoing, and discharge costs?
A reverse mortgage affects not just today's cash flow but your future equity. To get a clear picture:
Use online calculators to see how the loan balance grows over 5, 10 or 15 years.
Ask your broker for side-by-side comparisons from different lenders.
Model different scenarios, including lump sum vs. regular drawdowns, varying interest rates, and different property growth assumptions.
Preparing properly means going in with your eyes open. While Aussie does not provide assistance for reverse mortgages, we can talk through alternative options covered in this article to help you make a more confident decision.
Choosing the right reverse mortgage provider and broker
Finding the right reverse mortgage isn't just about chasing the lowest rate; it's also about finding the right fit. It's about ensuring the product aligns with your lifestyle, serves your long-term interests, and comes from a trusted provider. That's where having the right broker and lender in your corner makes all the difference.
With a broker guiding you, you don't have to navigate the fine print alone.
However, not all reverse mortgages are the same. Before committing, check that the lender offers:
Licensing: Only deal with providers licensed by the Australian Securities and Investments Commission.
Transparency: Look for clear terms, plain-English documents and no hidden surprises.
Consumer protections: This may include a no-negative-equity guarantee, so you'll never owe more than the value of your home.
Portability: Look for the option to transfer the loan with you if you relocate.
A strong track record: Ensure you review ASIC registers and customer feedback.
A reverse mortgage sits at the crossroads of homeownership, retirement planning, and estate management. A broker who specialises in retirement lending understands these nuances.
They'll keep your well-being in mind and ensure the product you choose works not only today, but also well into the future.
Note: While Aussie doesn’t assist with reverse mortgages, we can talk you through alternative options outlined in this article to help you decide what may suit your situation.