Reverse Mortgages

How does a Reverse Mortgage work?

A reverse mortgage is a specialised loan for Australians who are aged 55 or above and who own, or mostly own, their home. A reverse mortgage loan allows you to unlock the wealth, commonly referred to as the equity, that is saved in your property without the immediate need to sell or move.

Unlike traditional home loans, a reverse mortgage does not require mandatory monthly repayments; instead, the loan – including any interest and fees – is typically settled when your home is sold, usually when you downsize, transition into aged care, or when the last borrower passes away.

A Reverse Mortgage for seniors

The amount you are able to access through a reverse mortgage loan is determined by factors such as:

  • Borrowing Power: Your age plus your home’s value determines how much you can borrow.
  • Your Age: The older you are, the more equity you can generally access.
  • Property Value: An independent valuation will determine the value of your home.

How much could I borrow?

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Strategic retirement funding with Your Home Equity

For many, the family home is by far the biggest asset. However, the value and equity saved in the home are often overlooked when considering your retirement investment options. Integrating a reverse mortgage into your retirement funding plan can be a strategic solution when combined with your superannuation (i.e. Australian Retirement Fund or self-managed super fund) and the Age Pension.

By utilising a reverse mortgage loan, you can help preserve your savings for longer, allowing your superannuation to continue to grow, while using the equity in your home for more expensive lump sum payments, including aged care, healthcare or home modifications. This balanced approach to retirement funding allows you to stay in your home longer without sacrificing your financial freedom or lifestyle.

Important Information to Consider

One of the most important things to understand with reverse mortgages is that the interest applied to the loan is compounding. This means you will pay interest on the interest and any fees, as well as on the loan amount as it is drawn down. This will likely (there are some cases that are an exception) have an eroding effect on the remaining equity in your home – noting that there are limits on the amount that can legally be lent to protect borrowers. All Australian reverse mortgage borrowers are protected by the statutory No Negative Equity Guarantee, which ensures you (or your estate) will never owe more than the market value of your home.

Benefits of a Reverse Mortgage as part of an Australian retirement fund management strategy

  • Own and live in your home for as long as you choose.
  • Alleviate financial pressures and stress. 
  • More choices about what you do in retirement.
  • Improved lifestyle and sense of wellbeing.
  • May be able to retire earlier than originally planned.
  • Independent living at home for longer. 
  • Ability to fund and choose in-home care and services. 
  • Pay for aged care without having to sell the family home. 
  • Stay connected to neighbours and community.
  • Continue to benefit from capital growth on your property. 
  • Remain in control of your retirement finances and planning. 
  • Maximum flexbility so you can change your mind at any time. 
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Reverse Mortgage Facts

Everything you need to know about reverse mortgages, how they work, and what you can use them for.

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Reverse Mortgage Calculator

Find out how much you could borrow with our custom-designed reverse mortgage calculator.

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Ready to explore Reverse Mortgage options?

As specialist reverse mortgage brokers, Your Home Equity can help you navigate the complexities associated with reverse mortgages in Australia to help find the best solution for you. Contact our team of licensed mortgage brokers today to get started on your journey to a better retirement.

What Our Clients Have to Say

Frequently Asked Questions

A reverse mortgage is a specialised home loan designed specifically for people aged 55+ who own, or mostly own, their own home. Unlike other types of loans, regular repayments are not required – but you can make voluntary home loan repayments whenever you choose. You retain ownership of your home and remain living in it. The loan debt is repaid from the future sale of the home, which is generally when downsizing later in retirement or making the move into aged care.

There are many advantages to using a specialist broker. Firstly, they are qualified industry professionals who are familiar with all the current available loan products as well as the lenders. They have the tools and know how to explain how each loan works and what it costs (for example, interest rate, features, and fees). They are also bound by law to act in the best interests of borrowers when recommending any loan product, giving you added protection and peace of mind. They also do all the legwork, dealing with the lender, and managing the loan application process from start to finish.

If you are over 55, own (or largely own) your own home and live in a major Australian city or large regional town, you have already met some of the main eligibility criteria of a reverse mortgage.

A reverse mortgage loan is repaid when the security property is sold. This generally happens many years in the future when the homeowners downsize or move into aged care.

The average cost of setting up a reverse mortgage, including all the fees and charges from the lender, your broker and government charges, along with the cost of independent legal advice, is between $3,000 and $4,000. Noting, the cost of independent legal advice varies from lawyer to lawyer and state to state. We can help you work out all the fees and charges before you proceed, so you’ll be clear and know exactly what you’re up for.

With the right guidance, there may be no impact on your Age Pension entitlements. We can help structure your reverse mortgage so it doesn’t affect the amount of Age Pension you receive. If you’re not receiving a full Age Pension, there are also some different ways you can structure your loan that may even enhance your Centrelink payments.

With a reverse mortgage you can change your mind and sell your home at any time without incurring exit fees or penalties from the lender.

The No Negative Equity Guarantee (NNEG) was introduced in 2012 by the Australian Government. It is a law that protects reverse mortgage borrowers from owing lenders more than their home is worth. This means that if your property is sold for less than the amount owed to the lender, the reverse mortgage lender has to wear the loss – not you as the borrower.

Interest on a reverse mortgage is calculated in the same way as interest is calculated on a normal home loan – calculated daily and debited to the loan account monthly. However, interest on a reverse mortgage compounds because you are charged interest on your interest and you are also charged interest on any fees and charges that have been debited (only with your authority to do so or as per the terms and conditions) to the loan over time. This means that the longer you have the loan, the greater the amount you will have to pay back to the lender when the house is sold.

No. Australian borrowers are protected by law known as the No Negative Equity Guarantee (NNEG), and therefore cannot owe lenders more than their home is worth, regardless of what happens to the value of their property.

No. Just like a traditional home loan, reverse mortgage borrowers retain ownership of their homes and the title remains in the name of the borrower. You do not lose ownership of your home.*

No. Australian reverse mortgage borrowers cannot be removed from their homes by the lender.*

No. A reverse mortgage borrower cannot be forced to sell their home at any time against their will. Even if their home devalues dramatically, the borrower can continue to live in it for as long as they choose, repaying the lender only when the house is sold in the future.*

There is a significant financial cost to selling a home, not to mention an emotional one. According to an Australian Government Productivity Commission report, the vast majority of retirees (more than 80%) stated they wish to age in place. Selling up can also impact the amount of pension you are eligible to receive going forward.

While using some capital now will reduce the amount of equity you have in your home – over time, with good planning you can make sure you have enough in later years to fund aged care and your children’s inheritance. Did you know you can also use a reverse mortgage for gifting and inheritance purposes right now? If you are receiving a Centrelink pension (e.g. Aged Care), you need to take care with any gifting.

In the earlier days of reverse mortgages, there were isolated reports of aggressive tactics by cavalier brokers which led to highly unsatisfactory outcomes. The introduction of sweeping industry reforms and new Government regulations in 2012 is considered to be an overwhelming success and set the highest industry benchmarks for reverse mortgage broking and lending. The Government through ASIC now regulate the entire industry and undertakes ongoing investigations to ensure standards are maintained in the best interests of borrowers.

Reverse Mortgage borrowers have the right to stay in their home for life, provided they meet the loan obligations (i.e., do not default – the loan offer clearly describes default events) like maintaining the property and keeping up with insurance and council rates. The lender cannot force borrowers to leave, even if the loan balance increases significantly over time.

The lender must verify the current mortgage value of the property to assess loan eligibility and risk. In most cases, a licensed valuer visits the property and provides an independent report. This is a standard requirement for all reverse mortgage applications.

There are NO break costs with a reverse mortgage like you’d find in a fixed-term loan. However, most lenders charge a standard settlement fee when the mortgage is discharged. All fees are disclosed upfront, and we’ll help you understand exactly what applies in your particular – should you wish to repay the loan early.

One of the best benefits of a reverse mortgage is the flexibility it can provide couples as they get older. If one partner is required to move into aged care, the other can continue living in their own home. If all borrowers on the reverse mortgage need to move into aged care, there is a generous grace period (12 months) afforded to allow you to sell your property or arrange an alternative repayment.

While the HEAS can offer low interest rate, it is primarily designed as a supplement to your pension, and has strict limits on the amount that can be borrowed. A reverse mortgage offers greater flexibility, and allows for larger lump sums to do things such as renovate your house or consolidate debt.

Yes. You can use a reverse mortgage to help your children buy a property. If you are receiving an Age Pension, however, you do need to be aware of the rules around gifting and the impact this may have on your entitlements. As specialist brokers, we can provide you with guidance in relation to gifting.

Yes. You can use a reverse mortgage to buy a new vehicle, caravan or boat – or even to fund an overseas holiday. These are some of the most popular uses for a reverse mortgage in retirement.

*Terms and conditions apply and you will have responsibilities that you are required to meet under the contract.