Skip to main content

True wellbeing begins at home.

Retirement Lending

Reverse Mortgages: How They Work and Whether They Are Right for You

Published

A reverse mortgage lets you access the equity in your home without selling it. Here is how they work, what they cost, and what to consider before applying.

HomeBlogReverse Mortgages: How They Work and Whether They Are Right for You

By Jason Given · 2026-08-16 · 7 min read

What is a reverse mortgage?

A reverse mortgage is a loan against your home equity available to Australians aged 60 and over. Unlike a standard home loan, there are no repayments required while you live in the property. Instead, interest compounds on the balance over time - there are no monthly payments to make.

The loan is repaid when the home is sold, which usually happens when you move into aged care or pass away. In some cases, borrowers choose to sell voluntarily and repay the loan at that point. Either way, you retain full ownership of the property and can live in it for as long as you choose.

Reverse mortgages are regulated by ASIC and come with strong consumer protections. The most important of these is the negative equity guarantee - a legal protection that means you will never owe more than the property is worth, regardless of how much interest accumulates over time. This guarantee applies to all regulated reverse mortgage products in Australia.

For retirees who are asset-rich but income-poor - owning a valuable home but living on a limited pension - a reverse mortgage can be a practical way to access funds for living expenses, home modifications, medical costs, or simply improving quality of life in retirement.

How much can you borrow?

The amount you can borrow with a reverse mortgage is based on two factors: your age and the value of your property. Older borrowers can access a higher percentage of their home's value. This is because the lender expects the loan to run for a shorter period before repayment.

Your age Approximate borrowing range
6015-20% of property value
6520-25% of property value
7025-30% of property value
7530-35% of property value
80+35-45% of property value

Example: An $800,000 Adelaide property with a borrower aged 72. The approximate maximum borrowing amount would be around $240,000.

Funds can be taken in several ways: as a lump sum upfront, as a regular income stream paid into your bank account, or as a line of credit that you draw down as needed. The line of credit option is often the most cost-effective because you only pay interest on the amount you have actually drawn - not the full approved limit.

What it costs - the compound interest reality

Reverse mortgage interest rates are typically 1-3% higher than standard variable home loan rates. At the time of writing, that puts them in the range of approximately 8-10% per annum.

Because no repayments are made, interest compounds on interest. This is the most important thing to understand before committing to a reverse mortgage. The balance grows faster than most people expect.

Example: $100,000 borrowed at 8.5%

  • After 5 years:Balance grows to approximately $150,000
  • After 10 years:Approximately $227,000
  • After 15 years:Approximately $344,000

This is not necessarily a bad outcome. If the alternative is selling your home and moving somewhere you do not want to live, the cost of a reverse mortgage may be worth it. But you need to understand the numbers before committing.

Lendology models the projected balance at 5, 10, and 15 years so you can see the full picture before making a decision. We show you exactly how much equity you would retain at each point, based on conservative and optimistic property growth assumptions.

Consumer protections

Reverse mortgages in Australia come with significant legal protections built into the National Consumer Credit Protection Act. These apply to all regulated reverse mortgage products:

  • Negative equity guarantee. You will never owe more than the property is worth, even if the loan balance exceeds the property value. The lender absorbs the difference.
  • Right to remain. You can live in the home for as long as you wish. The lender cannot force you to sell while you are living in the property.
  • Independent legal advice. You are required to obtain independent legal advice before the loan is finalised. This ensures you fully understand the implications.
  • Occupancy guarantee. The lender cannot force a sale while you or your partner are living in the property, even if the loan balance has grown significantly.

These protections are built into Australian law and apply to all regulated reverse mortgage products. They provide genuine security - particularly the negative equity guarantee, which removes the risk of owing more than the home is worth.

The Home Equity Access Scheme - the government alternative

The Home Equity Access Scheme (HEAS) is a government-backed reverse mortgage available through Services Australia. It works differently from a private reverse mortgage in several important ways.

The interest rate is significantly lower than private reverse mortgages - currently around 3.95% compared to 8-10% from commercial lenders. This makes a substantial difference to how quickly the balance grows over time.

The scheme is available to age pension recipients and self-funded retirees of eligible age. Unlike private reverse mortgages, funds are paid as a fortnightly income stream rather than as a lump sum. The maximum payment is 150% of the full pension rate.

For retirees who need ongoing income rather than a large one-off payment, the HEAS is often a better option than a private reverse mortgage. The lower interest rate means your equity is preserved for longer. Lendology can explain both options and help you compare them side by side.

Alternatives to a reverse mortgage

A reverse mortgage is one option, but it is not the only one. Before recommending a reverse mortgage, Lendology reviews all available alternatives:

  • 1.Downsizing. Sell the family home, buy something smaller, and pocket the difference. The government's downsizer contribution allows you to add up to $300,000 per person to super from the sale. This can be the most financially efficient option if you are open to moving.
  • 2.Standard refinance with interest-only. If you have income from a pension or investments, a standard interest-only loan at a lower rate may be more cost-effective than a reverse mortgage. The rates are significantly lower, and making even small repayments dramatically reduces the long-term cost.
  • 3.Accessing superannuation. If you have super available, drawing from it may be preferable to borrowing against your home. Super withdrawals after age 60 are generally tax-free, and using super avoids the compound interest cost of a reverse mortgage.
  • 4.Family assistance. Some families arrange internal lending or gifting rather than using a formal reverse mortgage. This can work well but should be documented properly to avoid disputes or Centrelink complications.
Not sure which option is right for you?
Book a chat with Jason or Steve. We review all options - reverse mortgage, government scheme, downsizing, and refinancing - and give you an honest recommendation.
Book a chat

Frequently asked questions

How does a reverse mortgage work?

A reverse mortgage lets homeowners aged 60+ borrow against the equity in their home without making repayments. Interest compounds on the balance over time. The loan is repaid when the property is sold - typically when you move into aged care or pass away. You retain ownership and can live in the home as long as you wish.

How much can I borrow with a reverse mortgage?

The amount depends on your age and property value. At age 60, you can typically borrow 15-20% of your home's value. At 70, around 25-30%. At 80, up to 35-45%. On an $800,000 Adelaide property at age 70, that is approximately $200,000-$240,000. The older you are, the more you can access.

What are the risks of a reverse mortgage?

The main risk is that compound interest erodes your equity over time. A $100,000 reverse mortgage at 8% grows to approximately $215,000 over 10 years. This reduces the inheritance you leave and the funds available if you need to move into aged care. There is a negative equity guarantee in Australia - you will never owe more than the property is worth.

Are there alternatives to a reverse mortgage?

Yes. Options include downsizing (selling and buying a smaller property to free up cash), the government's Home Equity Access Scheme (a government-backed reverse mortgage at lower rates), accessing superannuation, or an equity release through a standard refinance if you have sufficient income. Lendology reviews all options before recommending a reverse mortgage.

Want to understand your options?

Book a no obligation chat. We explain every pathway and help you choose the one that protects your interests.

Book a chat 08 8270 5138
Related reading
DownsizingHome loans for pensioners and retireesHome equity: how to access and use itRepayment calculator