- A reverse mortgage lets older homeowners access the equity in their home without selling it
- Interest compounds over time and repayments aren’t due until the home is sold, the borrower moves out, or passes away, which means the loan balance can grow quickly and reduce future equity.
- Reverse mortgages come with important safeguards but also risks, and borrowers should research alternatives, understand long‑term impacts, and get independent legal and financial advice.
A reverse mortgage is typically available to people over the age of 65 who want to borrow money using the equity in their home as security against the loan.
A reverse mortgage lender may provide them either:
- a lump sum
- a long-term income stream, or
- a line of credit
borrowed against the value of their home, with repayments and interest payable when the borrower sells or moves out of their home. But these products, while useful, should be carefully considered.
Savings.com.au's two cents
Reverse mortgages are quite different to standard mortgages, largely because there is no imperative to make immediate repayments on your debt. But while accessing money through a reverse mortgage may be a viable solution for day-to-day cash flow issues, it pays to be aware of the longer-term implications.
Always do your research, consider alternatives, get independent legal and financial advice, and balance the risks.
What is a reverse mortgage?
A reverse mortgage is a type of equity release product (ERP) that allows older Australians to borrow money using the equity they have in their home - that is, the home's value minus any outstanding debt held against it (e.g. a mortgage).
Our Home Equity Calculator can give you some idea of the equity you hold in your property.
As such, homeowners can access the wealth that’s tied up in their most valuable asset when they may have limited cashflow to pay back alternative types of loans, as is common in retirement and pre-retirement.
[Those considering a reverse mortgage should] take the time to understand how the product works, seek independent advice, consult your family, and consider how it fits into your overall retirement plan.
Used thoughtfully, a reverse mortgage can provide flexibility and financial confidence in retirement.
Customers should look beyond interest rates and compare fees, how interest compounds, repayment flexibility, drawdown options, and the lender’s experience in the market.
How are reverse mortgages paid out?
Borrowers can typically choose to receive the loan as either a lump sum, a regular income stream, a line of credit, or a combination of any of these options.
How to repay a reverse mortgage
Unlike a regular mortgage, borrowers don’t have to make repayments on a reverse mortgage until all borrowers on the loan either sell the house, move into aged care, or die. However, many lenders will allow borrowers to make voluntary repayments if they want to.
As with any loan product, the loan must eventually be repaid in full, including interest and fees. However, reverse mortgages can see interest compounded - that is, interest charged is added to the loan balance, where more interest is accrued on it, and so on and so forth. This can cause a reverse mortgage's principal balance to grow at a rapid pace.
Here's a visual representation of how compound interest might work on a $500,000 reverse mortgage over 30 years (bearing in mind reverse mortgages are rarely so sizeable or have such a long loan term):
Reverse mortgage interest rates
Interest rates on reverse mortgages are often significantly higher than on regular home loans. This is mainly because of the extra risk they represent to lenders' balance sheets, as there is no immediate prospect of receiving repayments and it may be some time before the loan is paid back.
Who can qualify for a reverse mortgage?
To qualify for a reverse mortgage, most lenders require borrowers to be at least 65 years of age and have already paid off their home or, alternatively, repay any remaining home loan with funds from the reverse mortgage.
Generally, there are no income requirements for reverse mortgages, but Australia’s responsible lending requirements mean not everyone will be eligible for this type of loan.
Reverse mortgages can be used strategically to supplement retirement income or fund home modifications. However, the benefits need to outweigh the risks!
While I tend to focus on the risks of reverse mortgages, and rarely see situations where they are the best option, sometimes they can be appropriate for certain people.
I’ve seen adult children angry about Mum’s reverse mortgage because 'the bank took the house'. However, because she needed to support herself, she used the money for in‑home care, cleaning, and meals that let her stay at home for years. The estate was smaller, but her day‑to‑day life was far better and more independent.
How much can you borrow on a reverse mortgage?
The amount of equity that can be released will depend on the value of the property and the age of the borrower. Most lenders will allow homeowners to borrow anywhere between 15% and 45% of the property’s value. The amount that can be borrowed under a reverse mortgage will be calculated as a percentage of the total value of the borrower’s home equity. In home loan jargon, this is what’s called the loan-to-value ratio (LVR).
Generally, the older you are, the more you can borrow although different lenders may have their own policies on LVR caps.
As a general rule, if you’re 60, the most you can borrow is likely to be between 15% and 20% of the value of your home. This way, there's enough equity left to draw from later should you need it. Borrowers who are around 75 years of age may be able to borrow up to 35% LVR.
Reverse mortgage statistics
- The typical drawdown on a reverse mortgage at settlement is $150,000, representing a loan-to-value ratio of 15%
- Couples represent 45% of new reverse mortgage borrowers, followed by single women at 29%
- The most common age group for new reverse mortgage borrowers is 70-74
- More than 8,000 new households entered into a reverse mortgage in the 12 months to June 2025
- Most reverse mortgage lending growth is in regional areas with the Gold and Sunshine Coasts accounting for around 60% of lending in Queensland and 50% of NSW activity in the Hunter and Illawarra regions
- About 80% of borrowers voluntarily repaid their reverse mortgage loans in full during the 12 months to June 2025
- Australians over 60 hold an estimated $3 trillion in residential property and have tapped into less than 1% of the equity available to them, with reverse mortgages nationally totalling $5.5 billion as at June 2025
Data from Heartland Bank Australia and Deloitte
What can you use a reverse mortgage to fund?
Reverse mortgages can be used to fund just about anything a homeowner wants, and most reverse mortgage customers use their loan for more than one purpose.
According to data from Heartland Bank, reverse mortgages are generally used for:
- renovations/home improvements (45%)
- debt consolidation (40%)
- vehicle upgrades (25%)
- supplementing regular retirement income (20%)
- travel (18%)
Other uses include servicing existing debts, paying for gifts, and funding healthcare costs.
Legal protections concerning reverse mortgages
Ms Winzer said there are several key safeguards for customers, including the no negative equity guarantee, mandatory independent legal advice, clear disclosure about how interest compounds, and the right to remain in the home for life if loan conditions are met.
"We also believe customers should speak to their family and discuss their options," she continued.
"We encourage anyone looking to find more information about a reverse mortgage to call a member of our team to discuss any questions they may have."
The details of two key legal protections offered on reverse mortgages are as follows:
You can’t go into negative equity
Mr Budge noted many people considering a reverse mortgage incorrectly worry about leaving debt for their kids when they pass, but modern reverse mortgages negate this risk with a ‘no negative equity guarantee’ (NNEG).
"[This] means you should never owe more than the market value of the property," he said. "However, any proceeds from the home will go to pay off the debt."
Before the measure was introduced in 2012, borrowers faced the risk of eventually owing more on their reverse mortgage than what they could get from selling their property.
See also : What is negative home equity?
You can’t borrow more than a certain loan-to-value ratio (LVR)
Under the National Credit Act, you can only borrow up to a prescribed percentage of the property’s value with a reverse mortgage. These are set according to a borrower’s age and other variables. LVR limits effectively restrict the amount of interest that can accrue on new reverse mortgage loans and aim to prevent borrowers from depleting all or most of the equity in their homes.
How much does a reverse mortgage cost?
The cost of a reverse mortgage will depend on the interest rate and fees. The biggest criticism of reverse mortgages is that as interest compounds, the debt grows. In simple terms, the longer you have the loan for, the more interest that compounds and the larger the sum of money you need to repay.
As an example, if you were to take out a reverse mortgage of $50,000 at a fixed interest rate of 8.5% p.a. compounding monthly, in 10 years’ time you would owe more than double that amount thanks to compound interest, as the table below demonstrates.
*This example does not apply fees and assumes no voluntary repayments being made.
Loan term
Interest
Total amount owing
1 year
$4,420
$54,420
2 years
$9,230
$59,230
10 years
$66,632
$116,632
As well, application fees, transaction fees, and ongoing interest rates on reverse mortgages are typically much higher than those on standard home loans.
Variable rate
Comparison rate*
Heartland Reverse Mortgage allows people over 60 to access some of the equity in their home, helping them fund a more comfortable retirement. Importantly, with a reverse mortgage you continue to own and live in your home.
- Heartland deeply understands the particular needs of people over 60 and has a passion for changing the lives of Australians as they are moving to, or in, retirement.
- Flexible drawdown options such as a lump sum up front, regular ongoing advances (monthly, quarterly or annually), or a ‘cash reserve’ facility for future access to funds.
Advantages of reverse mortgages
The most obvious benefit of a reverse mortgage is that it allows borrowers to access the equity in their homes without having to sell their house or move – and without having to make immediate repayments.
Given the right set of circumstances, a reverse mortgage could feasibly fund a homeowner’s retirement, boost their capacity to cover living expenses, pay off debts, or improve their quality of life in their later years.
Our reverse mortgages empower older Australians to unlock the value in their greatest asset: their home.
By providing financial flexibility to age in place, our customers enjoy their retirement with dignity and independence in the homes they love.
Risks of reverse mortgages
There are many common misconceptions, and a few key risks, associated with reverse mortgages. For starters, many people considering the products think taking out a reverse mortgage means they no longer own the house, Mr Budge said.
"You’re still the legal owner, but you do have a ‘mortgage’ on the property, so you are required to meet the loan conditions - live there as your main residence, pay rates and insurance, and maintain the property.
"Even if the balance of your loan has grown, you generally cannot be forced to leave."
Here are the five key risks would-be reverse mortgage borrowers should consider before signing on the dotted line:
- The effect of compound interest means that your debt can quickly get out of control
"The main risk is underestimating how compound interest can reduce equity over time, which is why understanding long‑term impact is important," Ms Winzer said.
While the principal amount owing on a regular home loan decreases over time as it’s paid off, the opposite is true for reverse mortgages. Until any repayments are made, the debt continues to compound.
Due to the effect of compound interest over a longer loan term, borrowers who have the loan for a longer term face the erosion of their prime source of wealth, the equity in their homes. If too much equity is eroded, some borrowers may not be able to afford to meet their future needs. - The interest rates and ongoing fees can be much higher than the average home loan
Reverse mortgages come with a number of fees , the common ones being ‘discharge fees’, ‘upfront establishment fees’ and ‘ongoing fees’. Given many reverse mortgage borrowers struggle with cash flow, these are often lumped into the loan amount rather than being paid for upfront.
Because borrowers aren’t required to make any regular loan repayments, interest on the loan and interest on fees are added to the loan amount every month for the duration of the loan.
This could mean that a $1,000 establishment fee could quickly turn into $3,000 or more after 20 years of compounding interest has accumulated. - If the value of your home falls or doesn’t rise in value, you will have less money for future needs like aged care or medical treatment
Simply put, the more money you borrow now, the less equity you will have in your home in the future. The risk of this happening increases as interest rates on their reverse mortgage rise or if property prices grow more slowly than expected (or a combination of the two).
While reverse mortgages come with a no negative equity guarantee, borrowers may still face the risk of being left with not enough funds for their futures, which Mr Budge warns can have major implications when it comes to seeking aged care.
"A reverse mortgage can make it harder to pay a lump sum bond or accommodation deposit for aged care. This can leave you with fewer options of facility or location, and potentially lower quality care." - The loan can affect your eligibility to receive the pension
One of the big risks of a reverse mortgage is that it could also make you ineligible for the pension or other government benefits.
"The value of the house is exempt from the assets test, but ... if you take a lump sum [via a reverse mortgage] and let it sit in the bank or invest it, it counts towards asset tests," Mr Budge said.
"That can reduce or even wipe out the pension.
"Borrowing at a higher interest rate only to park that money in an account that lowers your pension and earns a much lower return can be very poor trade." - Effects on family
If the borrower dies or has to leave their home, other people living in the secured home can be forced to move out so the home can be sold to repay the loan. This can have serious implications for a surviving partner or others who may have been living in the home with the property owner. Some reverse mortgages may come with a tenancy protection warning to alert borrowers to this risk.
Reverse mortgages can also leave few proceeds once the home has been sold and the loan repaid.
"This can undermine long‑standing estate plans, especially where a surviving spouse, a disabled child, or other dependents need to have housing security," Mr Budge said.
What to consider before deciding on a reverse mortgage
Reverse mortgages can help older Australians with their short-term or immediate financial needs, but they can also come with significant long-term implications.
A 2018 review by the finance regulator ASIC found the common view among retirees - and even many finance brokers and lenders - was that equity release products (ERPs) like reverse mortgages can take advantage of vulnerable elderly people. The review also found that many borrowers who sign up to them don’t really understand how they work.
Additionally, while the 30 borrowers included in ASIC's report said a reverse mortgage allowed them to resolve immediate financial needs, all 30 also said they hadn't properly considered the many long-term financial implications.
“Most of the borrowers we interviewed had either not considered or actively avoided estimating how much equity would still be available to them several years from now," ASIC found.
"This may have influenced some borrowers’ perceptions about the long-term risks of their loan.”
Despite this, international research by big four consulting firm EY predicted the global equity release market could more than triple over the next ten years. It also found one of the greatest barriers to growth in the lending segment is a lack of understanding of how such loans work.
So, what should a homeowner stop to think about before signing up to a reverse mortgage? Here are the five steps Mr Budge recommends:
- Get very clear on what the funds are for
"Are you doing this to fund essential living costs, renovations, helping children? Not all reasons are created equal." - Know your timeline
"How long are you planning on staying in the property and what is your exit plan? Are you aiming to downsize, go into aged care, or simply stay living in your home indefinitely?" - Ask your lender or adviser to run 'what if' forecasts
"[Forecast what might happen] if you live in the home for 10, 15, 20 years, if you realise different percentages of property value growth, and more, so you can see how much equity might be left for you or your estate." - Seek professional advice
"I recommend seeing a professional to cover the pension and tax implications, as well as review the long-term effects, and compare alternatives. Professional advice can also extend to estate planning and seeing a solicitor to update your will or enduring power of attorney. These puzzle pieces are vitally important to have in place to protect you and your family members." - Understand what you're signing up for
"Make sure you understand the product and how it will work, whether that's the fees, interest rate, line-of-credit or redraw conditions, or the forecast of remaining equity based on your timeline."
Reverse mortgage alternatives
[A reverse mortgage is] just one option, and certainly not the first option! Review super, other assets, downsizing options, etcetera before taking this step.
If a reverse mortgage seems like the best option after you’ve carefully considered it, then the rule is to borrow as little as possible, as late as possible. Consider drawing funds gradually, instead of a lump sum, to reduce pension impacts and limit interest.
Build in as much financial flexibility as you can for later in life where your needs might be unexpected or require more money [and] speak to professionals before deciding. A financial planner, solicitor, and a Centrelink specialist can all be very helpful in navigating your options and risks.
Some common alternatives to a reverse mortgage include:
Sell and downsize
The most obvious solution to access the equity in your home is to sell it.
After all, if you’re at the age where you’re eligible for a reverse mortgage, it may be time to downsize anyway. But this won’t appeal to everyone, particularly if your aim is to stay in the home.
Home Equity Access Scheme
Formerly known as the Pension Loans Scheme, the Home Equity Access Scheme is the main alternative to reverse mortgages for those who want to stay in their homes.
Under the scheme, retirees can access a non-taxable fortnightly loan, borrowing up to a maximum value of 150% the rate of the age pension.
The loan can be repaid at any time, but it's usually repaid from the proceeds of any eventual sale of the secured property.
Homesafe Wealth Release
If neither of these options appeal, there are products that allow you to unlock the equity in your home by selling a share of it for an upfront price. One such product is Homesafe Wealth Release, marketed as an alternative to a reverse mortgage and offered by private company Homesafe Solutions.
Homesafe offers an upfront payment to the homeowner (usually a percentage of the equity available in the home) in return for an agreed percentage share of the proceeds of the sale of the home at a later date.
Unlike a reverse mortgage, there is no compounding interest to be accounted for down the track. The company receives its share of the home sale proceeds when the home is eventually sold.
Rent out a spare room
You can always consider renting out a spare room on a flatmates' website or listing your property on Airbnb to bring in some more cash. Renting out a portion of your home on a monthly basis can bring in a side income to help fund essential living expenses, and it could also provide some companionship.
There are many things to be considered before going down this path, however, such as whether you will be comfortable having people in your home, how the income may affect your pension, and any tax implications.