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If you’re a homeowner aged 60 or over and looking to unlock extra funds in retirement, a reverse mortgage could be an appealing option. But like any financial product, it’s important to understand how it works—and whether it’s the right fit for your goals and circumstances.
In this guide, we’ll explore:
- What is a reverse mortgage?
- How do reverse mortgages work in Australia?
- Are reverse mortgages safe?
- Pros and cons of using home equity in retirement
- Who should consider a reverse mortgage?
- Next steps and where to get advice
What Is a Reverse Mortgage?
A reverse mortgage allows older Australians (usually 60+) to borrow money using the equity in their home—without needing to sell or move out.
Unlike a regular mortgage, you don’t make repayments each month. Instead, the interest compounds over time and is repaid when you sell the home, move into aged care, or pass away.
The amount you can borrow depends on your age, the value of your home, and the lender’s criteria. As a rule of thumb, the older you are, the more equity you can access.
How Do Reverse Mortgages Work?
Here’s a simplified breakdown:
✅ You own your home (or most of it).
✅ You apply to borrow a lump sum, receive a regular income stream, or access a line of credit.
✅ No regular repayments are required.
✅ The loan (plus interest) is repaid from the sale proceeds of the home when you leave.
Example:
CASE STUDY
Margaret, aged 70, owns her $600,000 home in Caloundra outright. She takes out a reverse mortgage for $120,000 to renovate, pay off debts, and supplement her retirement income. No monthly repayments are needed. The loan will be repaid when her home is eventually sold.
Are Reverse Mortgages Safe?
Yes—when structured properly and with expert guidance, reverse mortgages in Australia can be safe. Here’s why:
1. No Negative Equity Guarantee
By law, regulated reverse mortgage lenders must offer a “no negative equity guarantee.” This means you’ll never owe more than the value of your home, even if the loan balance grows over time.
2. ASIC Regulation
Reverse mortgages are regulated by ASIC and governed under the National Consumer Credit Protection Act, ensuring transparency and consumer protections.
3. Age-based borrowing limits
Lenders cap how much you can borrow based on your age. This helps ensure you don’t deplete your home equity too quickly.
However, it’s still critical to:
- Get independent financial and legal advice.
- Understand how compound interest works.
- Discuss your plans with family or a trusted adviser.
Pros of a Reverse Mortgage
✔️ No repayments while living in the home
✔️ Stay in your home—no need to downsize or sell
✔️ Access to tax-free cash
✔️ Flexible options: lump sum, income stream, or line of credit
✔️ Used for anything: renovations, medical bills, holidays, aged care
Cons to Consider
❌ Compound interest can add up quickly
❌ Reduces the value of your estate
❌ May affect eligibility for Centrelink entitlements
❌ Can impact your long-term financial plans
❌ Early exit fees or restrictions with some lenders
Reverse mortgages aren’t for everyone—and should be seen as a strategic financial tool, not a first resort.
Who Should Consider a Reverse Mortgage?
You might benefit from a reverse mortgage if:
- You’re aged 60+ and own your home
- You want to age in place and avoid downsizing
- You need extra funds for retirement income, health needs, or home upgrades
- You’re not ready to access your super or don’t have much in savings
- You want to help your kids or grandkids now, not later
FAQs:
What is the biggest problem with a reverse mortgage?
A reverse mortgage increases your debt and can use up your equity. While the amount is based on your equity, you’re still borrowing the money and paying the lender a fee and interest. Your debt keeps going up (and your equity keeps going down) because interest is added to your balance every month.
Does reverse mortgage affect Centrelink payments?
For most retirees, a reverse mortgage offers a way to tap into home equity without impacting their Centrelink payments, as long as the funds are used as outlined.
Does a reverse mortgage affect your pension?
If you decide to take your reverse mortgage as regular payments (e.g., monthly instalments), these payments are not classified as income for Centrelink purposes. Therefore, they will not affect your Age Pension under the income test.
Is there a catch to a reverse mortgage?
The interest rate on a reverse mortgage is usually higher than on a home equity line of credit. Be sure to compare solutions. Interest rates may increase or decrease over time. Since you aren’t required to repay the loan before the maturity date, interest keeps accruing and can end up being a significant cost.
What is the government reverse mortgage scheme?
A reverse mortgage allows you to borrow money using the equity in your home as security. If you’re age 60, the most you can borrow is likely to be 15–20% of the value of your home. As a guide, add 1% for each year over 60. So, at 65, the most you can borrow will be about 20–25%.
What happens if you live too long on a reverse mortgage?
While you can’t technically outlive the reverse mortgage itself, you can outlive the equity in your home. Over time, the loan balance grows as you draw funds and the interest accrues. If you live long enough, that balance can eventually exceed the value of your home, especially if home prices stagnate or decline.
Which is better, a home equity loan or a reverse mortgage?
If you’re retired and on a fixed income, a reverse mortgage could allow you to borrow without repaying by installments. But if you can fit loan payments into your budget, you might be better off with a home equity loan because it doesn’t require giving up your home in the future.
Can you pay out a reverse mortgage?
While you won’t need to make repayments when still living in your home, once the property used to secure the loan is sold, the reverse mortgage loan balance will need to be repaid in full, including interest and any ongoing fees.
What is the major disadvantage of reverse mortgage?
What are disadvantages of reverse mortgages?
- Mortgage insurance premiums. You will be charged an initial premium & annual premium. These are in addition to the home insurance that you already pay.
- Closing costs such as appraisal fees, survey fees, and other fees.
- Loan origination fees.
- Interest costs.
- Monthly servicing fees.
Tips Before Applying
- Get a full loan projection from your broker showing how the loan will grow over time.
- Review your Centrelink entitlements and how a reverse mortgage could affect them.
- Speak to a financial planner and legal adviser.
- Make sure the lender is registered and offers ASIC-compliant products.
Get Expert Help on the Sunshine Coast
At KA Lending Solutions, we help you explore whether a reverse mortgage is the right strategy based on your unique lifestyle, goals, and property.
📍 Located in Caloundra and servicing the entire Sunshine Coast, we’ll walk you through:
- How much you can borrow
- Flexible loan structures
- Centrelink considerations
- Estate planning factors
- Long-term strategies for ageing at home
A reverse mortgage can be a safe and powerful financial tool—if you understand how it works and if it fits your needs.
If you’re ready to tap into your home’s equity to live more comfortably, age in place, or enjoy retirement on your terms, we’re here to guide you every step of the way.
Let’s Chat!
Book a free consultation:
📱 0447 503 399
📧 enquiries@kalendingsolutions.com
🌐 www.kalendingsolutions.com
