Quick answer
A reverse mortgage lets homeowners in or near retirement borrow against their home without making regular repayments, with the loan usually repaid when the home is sold or the borrower moves into care or passes away. Interest compounds, so the balance grows over time. Ownright Custom Finance can talk through reverse mortgages, the government scheme and other options Australia-wide.
Key points
- No regular repayments are usually required while you live in the home
- Interest compounds, so the debt grows and equity shrinks over time
- A government alternative, the Home Equity Access Scheme, exists for people at Age Pension age
- Other routes such as a refinance, downsizing or a second mortgage can suit some people better
- Suits
- Older homeowners wanting cash flow without selling
- Security
- Your home
- Repayment
- Usually on sale, moving out or passing away
- Australia-wide
- Yes
What is a reverse mortgage and how does it work?
A reverse mortgage is a home loan designed for older homeowners who want to turn some of the value in their home into cash while still living in it. Instead of paying the loan down each month, the interest is added to the balance. The debt gets bigger over time, and it is normally repaid when the house is sold, the borrower moves out for good or the last borrower passes away.
Think of it as the mirror image of a normal mortgage. A standard loan shrinks as you pay it off and your equity grows. A reverse mortgage does the opposite: the loan grows and your equity gradually shrinks. That is the whole trade, and it is worth understanding before anything else.
Who tends to look at a reverse mortgage?
- Retirees who are asset-rich but short on cash flow
- Homeowners who want to fund home repairs, a car or a dream trip without selling
- People helping a family member with a deposit or a debt
- Borrowers who need to pay out a loan that has become hard to service on a reduced income
- Those wanting to pay for in-home care or aged-care costs in a staged way
Reverse mortgages are not for everybody. If you plan to leave the home within a few years, or you want to leave the house to your children with as much equity as possible, other tools may fit better. That is why the first conversation is about your plans, not a product.
What do lenders look at?
Your age and the property. Lenders typically set a minimum borrower age, and the amount available generally rises with age because the loan is expected to run for a shorter time. The home needs to be in a location and condition the lender is comfortable with.
Existing debt. Most reverse mortgages have to clear any existing mortgage on the home, which reduces what is left as spendable cash.
How you will use the money. Lump sums, regular payments and a standby line of credit are all possible depending on the lender. Taking a lump sum you do not need can be costly because interest builds on the full amount straight away.
Who lives in the home. If a partner or other occupant is not a borrower, they may have limited rights if the borrower passes away or moves into care. Lenders and advisers will ask about this, and so will we.
Reverse mortgage versus the Home Equity Access Scheme
People at Age Pension age may be eligible for the Home Equity Access Scheme, a voluntary government loan that can be taken as fortnightly payments, a lump sum or a combination. It is secured against real estate and interest compounds on the balance, which means a longer repayment period increases the total interest. It also comes with a no-negative-equity guarantee. Services Australia’s online calculators show what you could borrow.
| Feature | Private reverse mortgage | Home Equity Access Scheme |
|---|---|---|
| Provider | A private lender | Services Australia |
| Eligibility | Lender criteria, usually an age threshold | Age Pension age |
| How funds arrive | Lump sum, regular payments, line of credit | Fortnightly, lump sum or both |
| Interest | Compounds on the balance | Compounds fortnightly |
| Best for | Larger or flexible access to equity | Steady top-up to retirement income |
Other ways to release equity
A reverse mortgage is one door among several. Depending on your situation, these may fit better:
- Downsizing, which frees equity without taking on debt
- A refinance to a better-structured loan if you still have income to service it. See our page on home loan refinance
- A top-up on an existing loan, covered under home loan top up
- A second mortgage for a defined period when you have a clear exit, such as a sale or inheritance. Our second mortgages page explains the ranking
- A family arrangement in which a relative supports repayments, which may involve a guarantor
Our guide on refinance versus second mortgage sets out the differences, and the equity calculator gives a rough view of the equity you hold.
How Ownright approaches equity release
Trevor Scott has spent more than 40 years in finance, and a lot of that time has been spent sitting across the table from people who have a valuable home and a very specific problem. We start with the problem. Is it cash flow, a debt that is hurting, a family situation or a plan you have always wanted to fulfil?
Then we show you the options side by side, including the ones that do not involve us at all. Some solutions almost no other broker knows about, so we look at what is available before we recommend anything. Where a reverse mortgage is not something we arrange, we say so honestly and point you to a better-fitting option instead. We work with homeowners in every state and territory from our Knoxfield, Victoria head office.
An illustration
Illustrative scenario only. A retired couple own their home outright and receive a part pension. Their roof needs replacing and they would like some flexibility for medical costs. They are keen to stay put and do not want a monthly repayment. A broker might compare a modest standby facility on a reverse mortgage against a smaller lump sum under the government scheme, then explain how each choice changes the equity left for their children after ten, fifteen or twenty years.
Mistakes to avoid
- Borrowing a large lump sum that sits in the bank while interest builds
- Not telling family, then surprising them later
- Overlooking how the loan affects pension and aged-care assessments
- Skipping independent legal and financial advice
- Assuming the first option offered is the only option
Documents to have ready
- Photo ID and proof of age
- Recent rates notice and insurance certificate for the home
- Details of any existing mortgage
- Pension or income statements
- Details of anyone else living in the property
Our guide on what documents you need for a loan covers the full checklist, and how to get loan ready is a handy primer.
Want to talk about releasing equity from your home?
If you are weighing up a reverse mortgage, you can tell us about the home and what you are hoping to do and we will compare your options in plain English. You can also phone the team on 03 7043 7233.
Looking for a reverse mortgage or equity release option?
Sounds like you are looking for a way to use your home’s value without selling it. We chat to older homeowners about exactly this every week, so click the button below and see if you qualify.
How it works, step by step
- 1
Step 1
Tell us why you want to release equity, how long you plan to stay and who else has a say in the home.
- 2
Step 2
We compare a reverse mortgage with the government scheme, a refinance and other routes in plain English.
- 3
Step 3
If a reverse mortgage fits, we approach lenders comfortable with your age, property and location.
- 4
Step 4
You take independent advice, sign, and the funds are paid in the way you chose.
Frequently asked questions
What is a reverse mortgage in simple terms?
A reverse mortgage is a loan secured against your home where you generally do not make regular repayments. Interest is added to the balance, so the amount owing grows over time. The loan is usually repaid when the home is sold, you leave it permanently or the last borrower passes away.
Do I still own my home with a reverse mortgage?
Yes. You keep title to the home and remain responsible for rates, insurance and maintenance. The lender holds a mortgage over it as security, just like any other home loan. What changes is that the debt grows over time rather than shrinking, which reduces the equity left for you or your family.
How is the Home Equity Access Scheme different?
The Home Equity Access Scheme is a voluntary government loan for people at Age Pension age, secured against real estate. It can be paid as regular fortnightly amounts, a lump sum or a mix, and interest compounds on the balance. Services Australia publishes the details, and we can help you compare it with private options.
What happens if the loan grows bigger than the home is worth?
Reverse mortgages written under Australian consumer credit law are required to include protection against negative equity, so the borrower or their estate should not owe more than the home is worth when it is sold. Ask for that confirmed in the loan documents, and read the information statement carefully.
Will a reverse mortgage affect my pension?
It can. Money drawn as a loan is generally not treated as income, but if you hold unspent funds they may count toward assessable assets, and the way you use the money matters. Services Australia and a financial counsellor can confirm how your own situation is treated. We can help you ask the right questions.
Can I borrow against a rural property or a home with unusual features?
Sometimes. Acreage, lifestyle properties and homes in remote areas can narrow the lender field, because they are harder to value and resell. We have arranged finance on all kinds of property Australia-wide, so tell us about the home early and we will look at what is available.