Five common myths about reverse mortgages and why they’re wrong

When it comes to reverse mortgages in Australia, there’s still some confusion and misinformation. Many Australian homeowners hesitate to explore this financial option due to myths that simply aren’t true. At Your Home Equity, we believe reverse mortgages can be a powerful financial tool for retirees looking to unlock the value in their homes without selling up or downsizing. In this article, we’ll debunk the five most common myths surrounding reverse mortgages in Australia and help you understand how they can provide financial freedom and flexibility in retirement.

Myth #1: You lose ownership of your home

The Truth: You remain the owner of your home.

One of the most persistent myths is the idea that when you take out a reverse mortgage, the lender takes ownership of your home. In Australia, this is patently false. Just like with any other mortgage, you remain the legal owner of your home with a reverse mortgage. The lender holds a registered first mortgage over the property as security for the loan, but ownership stays with you.

As long as you meet the conditions of the loan — such as maintaining the property, paying for home insurance, and keeping up with rates — you have the right to stay in your home for as long as you choose.

Myth #2: Reverse mortgages are too risky

The Truth: Reverse mortgages in Australia are highly regulated and designed with borrower protection in mind.

Some people believe that reverse mortgages are too risky, but this isn’t the case. In Australia, reverse mortgages are highly regulated by the Australian Securities and Investments Commission (ASIC) and must comply with the National Consumer Credit Protection Act 2009 (NCCP Act). This ensures borrowers are treated fairly and provided with clear information before making any decisions.

Additionally, all reverse mortgage products in Australia come with the protection of a No Negative Equity Guarantee. This means that, no matter what happens to property values, you, your family, or your estate will never owe more than the value of the home when it’s sold. This protection eliminates the fear of debt exceeding the home’s value, making reverse mortgages safer than many people realise.

Myth #3: They’re only for people in financial trouble

The Truth: Reverse mortgages can benefit a broad range of homeowners, not just those struggling financially.

There’s a common misconception that reverse mortgages are only for people facing financial hardship, but in reality, they can be a strategic financial tool for a wide range of Australian retirees. While reverse mortgages can certainly provide much-needed financial relief for those with limited savings, they’re also a useful option for homeowners who want to:

• Supplement their retirement income.
• Fund home improvements or renovations.
• Cover healthcare or aged care costs.
• Take the occasional holiday or enjoy a better lifestyle in retirement.

It’s not just about “getting by” — a reverse mortgage allows you to use the equity in your home to enhance your retirement and give you greater financial flexibility, regardless of your financial position.

Myth #4: Reverse mortgages come with high, hidden fees

The Truth: Reverse mortgage costs are upfront and transparent.

Another common myth is that reverse mortgages come with high or hidden fees that can catch borrowers off guard. In Australia, lenders are required by law to disclose all fees and charges upfront, so you can clearly understand the costs involved before you proceed. These fees generally include:

• Establishment fees
• Legal fees
• Valuation fees
• Ongoing interest (and compounding interest)

One of the benefits of reverse mortgages is that these fees are often added to the loan balance rather than being paid upfront. This means there’s no immediate out-of-pocket cost to the homeowner. Instead, the fees and interest accrue over time and are repaid when the loan ends, typically when the home is sold.

Myth #5: You’ll leave your family with debt

The Truth: Your family won’t be left with debt.

A major concern for many retirees is the idea that taking out a reverse mortgage will leave their family with a financial burden when they pass away. However, in Australia, reverse mortgages include protections that prevent this from happening. Thanks to the No Negative Equity Guarantee, your family will never be responsible for repaying more than the value of the home when it’s sold.

When the loan is due (typically when the last surviving borrower leaves the home or passes away), your family can sell the property, and the proceeds are used to repay the loan. Any remaining equity (surplus funds) in the property goes to your estate. If the home’s value has dropped and is less than the outstanding loan balance, the lender absorbs the loss — you’re your estate, or your family are not liable for the difference.

The overlooked benefits of reverse mortgages

In addition to debunking these myths, it’s important to highlight the real benefits that many people overlook when it comes to reverse mortgages in Australia:

• Tax-free income: The funds you receive from a reverse mortgage are tax-free, as they are considered a loan, not income. This means they don’t affect your age pension or other entitlements (Centrelink has rules about how much can be borrowed and held in a bank account or other investments.  An income ‘top-up’ which is spent each month is not taxed nor will it have any impact on Centrelink pensions).
• No monthly repayments: You don’t have to make any repayments on the loan while you live in your home, which can significantly improve your cash flow during retirement.
• Flexibility: Reverse mortgages can be tailored to suit your needs — you can take the funds as a lump sum, regular payments, or set up a line of credit to access when needed.
• Preserving homeownership: You can stay in your home for as long as you want, retaining full ownership, while still benefiting from the equity you’ve built up.

Reverse mortgages can provide a safe, flexible, and reliable source of income for Australian homeowners looking to enjoy their retirement without the stress of downsizing or selling. By debunking these common myths, we hope more Australians will explore the genuine benefits of reverse mortgages and understand how they can enhance financial freedom in retirement.

At Your Home Equity, we specialise in helping Australian homeowners navigate the reverse mortgage process and tailor solutions that work for their unique needs. If you’re considering a reverse mortgage and want to learn more, contact our team today for expert advice.