What is a reverse mortgage? 

A reverse mortgage allows a homeowner to borrow money using the equity in their home as security. It is typically designed for older Australians who are “asset rich but cash poor”, meaning they own a valuable property but may have limited income in retirement. 

Unlike a traditional home loan, borrowers are generally not required to make regular repayments. Instead, the loan (including interest and fees) is repaid when the home is sold, the borrower moves into aged care, or passes away.  

Funds can be accessed in several ways: 

This flexibility makes reverse mortgages a consideration for retirees looking to supplement their lifestyle or manage expenses. 

Why consider a reverse mortgage? 

Many Australians enter retirement with significant wealth tied up in their home but limited accessible cash flow. A reverse mortgage can help unlock that equity to: 

• Improve day-to-day cash flow
• Cover rising living costs
• Pay off existing debts
• Fund home renovations or modifications
• Assist with medical or aged care expenses  
• Provide financial support to family  

This can help retirees transition from being “asset rich” to “improving access to cash flow depending on circumstances”.  

How does it work? 

Interest is charged on the amount borrowed, and importantly, it compounds over time. This means interest is charged on both the original loan and previously accrued interest. 

As a result, the loan balance grows over time. For example, even a modest loan can more than double over a 10-year period depending on the interest rate and loan structure.  

The amount of equity remaining in the home will depend on: 

• How much is borrowed  
• The interest rate  
• How long the loan is held  
• The future value of the property  

Key features and protections 

Reverse mortgages in Australia are regulated under the NCCP Act and include important consumer protections: 

• No Negative Equity Guarantee (NNEG): You can never owe more than the value of your home when it is sold.  
• No regular repayments are typically required: Although voluntary repayments can be made at any time and the loan must be repaid in the future (eg. When the property is sold). 
• Lifetime occupancy: Borrowers can remain in their home as long as they choose, provided loan conditions are met  

Eligibility and borrowing limits 

Generally, reverse mortgages are available to homeowners aged 60 and over (some lenders may allow from age 55).  

The amount that can be borrowed is based on the borrower’s age and property value. Loan-to-value ratios (LVRs) increase with age, for example: 

• Around 20% at age 60  
• Increasing by approximately 1% per year  
• Up to around 50% for borrowers aged 90+  

Important considerations 

Reverse mortgages are not suitable for everyone and should be carefully considered. 

1. Compounding interest 

Because there are usually no repayments, interest compounds over time. This can significantly increase the loan balance. 

2. Impact on future choices 

Using too much equity early may reduce your ability to: 

• Fund aged care  
• Cover medical costs  
• Maintain your home or lifestyle later in life  

3. Impact on inheritance 

A reverse mortgage reduces the equity remaining in your home, which may affect what you leave to beneficiaries. 

4. Impact on other residents 

If someone else lives in the home, they may need to move out when the loan is repaid unless protections are in place.  

5. Government benefits 

In some cases, a reverse mortgage may impact pension or Centrelink entitlements depending on how funds are used. 

Is a reverse mortgage right for you? 

A reverse mortgage may be appropriate in certain circumstances, particularly for retirees seeking flexibility and improved cash flow. 

However, it is a complex product that requires careful consideration, professional guidance, and a clear understanding of both the benefits and long-term implications. 

If you’re considering this option, it’s important to explore alternatives and seek advice tailored to your personal situation. 

How Finance Advisory Co can help 

At Finance Advisory Co, we work closely with clients to review their lending holistically – not just comparing rates, but considering structure, strategy, and long-term objectives. This includes helping you understand your options, potential opportunities, and any implications before making a decision.  

Get in touch with Ben at Finance Advisory Co by calling 0426 236 007 or emailing ben@finad.com.au for a conversation about your current lending position. 

Finance Advisory Co Pty Ltd (ABN 37 660  030 419) is a Credit Representative (CR No. 541104 of Connective Credit Services Pty Ltd (Australian Credit Licence 389328 ) 

This article is intended to provide general information only and does not take into account your objectives, financial situation or needs. While every effort has been made to ensure the accuracy of the information, it does not constitute legal, tax or financial advice and should not be relied upon as such. You should consider whether the information is appropriate to your circumstances and seek independent professional advice before making any financial decisions. All lending is subject to lender terms and conditions, fees, charges and eligibility criteria.