Key Takeaways
- Owners aged around 60 or over can borrow against the home, keep the title and make no repayments until the property is sold or permanently vacated.
- Interest compounds on the balance and rates sit well above standard home loans, so how the money is drawn matters as much as the rate itself.
- Establishment, valuation, legal, registration, ongoing and discharge fees increase the cost, and most can be capitalised rather than paid upfront.
- Negative equity protection has applied since September 2012, and it limits the debt to the eventual sale price of the home.
A reverse mortgage runs in the opposite direction to the loan you spent 30 years clearing. Nothing leaves your account each month, and the balance grows rather than shrinks. How does a reverse mortgage work in practice, and what does it ask of you in return?
The major banks withdrew from reverse mortgage lending between 2017 and 2019, leaving a handful of specialist lenders and smaller banks writing the business. The differences between them are structural rather than cosmetic.
Understanding the mechanics is separate from deciding whether equity release suits you. For the wider decision, including the alternatives and the effect on your pension and your estate, a reverse mortgage broker can work through it with you.
These loans are regulated under Australian consumer credit law, which puts borrower protections behind the contract. Rates, fees and lender policies shift, so treat the figures here as a guide rather than a quote.
What Sets a Reverse Mortgage Apart From a Standard Home Loan
The mortgage registered over your title looks much like any other. Four features set it apart:
Ownership That Stays in Your Name
You remain the registered owner throughout. The lender takes a mortgage over the property as security, as it would on an ordinary home loan, and discharges it once the balance is cleared. Under home reversion you sell a share of the property instead. A reverse mortgage is borrowing, not a part sale.
Repayments That Remain Voluntary
No repayment is required while you live in the property, which is why lenders do not test your income as they would on a standard loan. Some lenders offer a sharper rate if you pay part or all of the interest as it falls due, which holds the balance steady.
Limits That Follow Age Rather Than Income
Borrowing capacity comes from an age-based scale applied to the value of the property, not from what you earn. The percentage available rises with each year of age, because the lender is estimating how long the balance will compound before the property is sold. Where a couple borrows together, the younger person’s age sets the limit for both.
Terms That Have No Fixed End Date
There is no 25-year term and no maturity date to refinance around. The loan runs until a defined event occurs, and that event may be five years away or 25. Lenders price for that uncertainty, which is the main reason reverse mortgage rates sit above standard home loan rates.
Who Can Apply and Which Properties Qualify
Eligibility is narrower than most people expect, and the property counts for as much as the borrower. Lenders look closely at four things:
Age Limits and Scales
Most lenders set a floor of 60, though some start at 55 and others require 65 or older for particular products. Each lender publishes its own age scale, and those scales are one of the clearest differences between lenders.
Property Types and Locations
Standard houses and units in metropolitan areas and larger regional centres are straightforward. Small apartments, rural holdings, holiday homes, retirement village units and properties on acreage are often excluded or attract tighter limits. Some lenders lend only in particular states or capital cities, which narrows the field further.
Existing Mortgages and Other Debts
Any existing mortgage must be repaid at settlement, usually out of the reverse mortgage itself. That reduces the funds left for your purpose, and where the existing balance is large it can absorb the whole facility. Where your income still supports repayments, a refinance arranged by a broker may cost less than rolling that debt into a balance that compounds.
Joint Owners and Occupants
Where the home is owned jointly, both owners normally need to be borrowers and to meet the age test. Anyone living in the property who is not on the loan, whether an adult child or a tenant, should be identified early. Lenders usually require them to sign an acknowledgement that they have no right to remain once the loan becomes repayable.
How Interest Builds on the Loan Balance
Interest is what makes a reverse mortgage reasonable over short periods and expensive over long ones. Four elements shape the outcome:
Charging Interest Without Repayments
Interest is calculated on the outstanding balance and added to it, commonly each month. The following period’s interest is then charged on the higher figure. Over three to five years the effect is modest. Over 15 to 20 years the balance can double or more, so how long the loan runs matters more than almost anything else.
Comparing Rates Against Standard Home Loans
Reverse mortgage rates in Australia have generally sat near 9% through 2026, against an average variable home loan rate closer to 6% or 7%. Fixed rates are rarely offered on these products, so the rate you start on is not the rate you will hold. A gap of 1% compounds into a substantial sum across two decades, which makes comparing lenders worthwhile even when the headline figures look close.
Timing Your Drawdowns to Slow the Growth
A lump sum begins compounding on the full amount from settlement. A line of credit or a regular payment stream compounds only on what has been drawn. Where the need is ongoing rather than immediate, drawing progressively can leave more equity intact after 10 or 15 years, for the same total amount received.
Reading the Equity Projections
Australian credit law requires the lender or broker to show you projections of your equity over time, produced with the calculator published by the Australian Securities and Investments Commission (ASIC), before the contract is entered into. Ask for the figures at several rate assumptions rather than one, and at a property growth rate below the long-run average. Take the printed copy away and read it somewhere other than the lender’s office.
What a Reverse Mortgage Costs Beyond the Interest Rate
Fees on a reverse mortgage behave differently from fees on an ordinary loan, because most of them can be added to the balance and compound at the loan rate for the life of the facility. The main categories are:
Establishment and Application Fees
Lenders charge an upfront fee to set the loan up, commonly ranging from nothing to around $950 depending on the lender and the loan size. Where it is capitalised rather than paid at settlement, it compounds for as long as the loan runs, which turns a modest upfront figure into a larger one over 20 years.
Valuation and Legal Costs
A qualified valuer inspects the property before approval, and the cost varies with property type and location, with rural and unusual properties sitting at the higher end. Legal costs cover preparing and registering the mortgage, and separately your own independent legal advice, which most lenders require before they proceed.
Registration and Title Charges
Registering the mortgage over your title attracts a fee set by the land titles office in your state or territory, and a matching fee applies on discharge. These are government charges rather than lender charges, so they do not vary between lenders.
Service and Account Fees
Some lenders charge a monthly account fee, often between $8 and $15, while others charge nothing. It is capitalised each month and compounds with everything else.
Discharge and Variation Fees
Ending the loan attracts a discharge fee. Changing the arrangement partway through, such as adding a drawdown facility or substituting the security property, may attract a variation fee. Early repayment penalties are uncommon on current products, but the contract is the place to confirm that rather than the brochure.
The fees above are a general guide only. Amounts vary by lender, property and state, and change over time, so ask for a written schedule for your own situation before proceeding.
The Application Process From Enquiry to Settlement
The process carries steps a standard home loan does not, and those steps exist to slow the decision down. A typical application moves through six stages:
Establishing the Purpose and the Amount
The starting point is the specific purpose and the smallest amount that meets it, rather than the maximum available. Purpose shapes structure, because a one-off cost, an ongoing income shortfall and a future contingency each suit a different drawdown arrangement. Under the Best Interests Duty, a credit assistance provider must be satisfied that what it recommends suits your circumstances.
Preparing the Supporting Documents
Reverse mortgage applications are lighter on financial paperwork than an ordinary home loan, because there is no serviceability assessment, and heavier on property and identity material. Documents commonly requested include:
- Photo identification for every borrower
- Current council rates notice and building insurance certificate
- Title details and a statement for any existing mortgage
- Evidence of the purpose, such as a quote for home modifications
- Details of any non-borrowing occupant
- Signed certificate confirming independent legal advice
The documents above and the timing below are a general guide only. Requirements differ between lenders, and a straightforward application commonly takes three to six weeks from enquiry to settlement, though valuation scheduling and legal appointments can extend that.
Comparing Lenders and Structures
With so few active lenders, a proper comparison covers rate, age scale, drawdown options, fees, geographic restrictions and whether an equity protection option is available. That last feature ring-fences a percentage of the eventual sale proceeds from the loan, at the cost of reducing how much you can borrow. Because the major banks left this market, the choice between a broker or a bank looks different here than on a standard home loan.
Valuing the Property
The lender arranges a full valuation, and the figure it returns sets your borrowing limit. Valuations on reverse mortgages tend to be conservative, since the lender is estimating value at an unknown future date. A result below your expectation is common enough to plan for.
Obtaining Independent Legal Advice
Most lenders require a certificate confirming you have received independent legal advice from a solicitor who is not acting for them, and some also require financial advice. Take the equity projections to that appointment. Bringing an adult child along is worth considering, because the decision reaches into the estate as well as your own budget.
Drawing the First Funds at Settlement
Settlement discharges any existing mortgage, registers the new one and releases the funds according to the structure you chose. Where you have taken a line of credit rather than a lump sum, leaving it largely untouched costs very little.
Obligations That Continue While the Loan Runs
The contract carries obligations that run for the life of the loan, and breaching them can make the balance repayable well before you had planned. Four areas are worth knowing:
Occupancy and Absence Rules
The property must remain your principal place of residence. Contracts set a limit on how long it can be left unoccupied, often between six and 12 months, and extended travel or a long hospital stay can approach that limit without anyone noticing. Renting it out, in whole or in part, generally requires the lender’s consent.
Rates, Insurance and Maintenance Costs
Council rates, water charges and owners corporation levies remain yours to pay. Building insurance must stay current, with the lender noted on the policy and the sum insured reflecting rebuilding cost rather than market value. The property needs to be kept in reasonable repair, since its value is the lender’s only security.
Notification and Reporting Duties
Lenders expect to be told when circumstances change. That includes a borrower moving into care, a borrower dying, someone new moving in, a substantial renovation or a decision to sell. Telling them early keeps your options open, and telling them late tends to narrow them.
Breach and Enforcement Consequences
Where a condition is breached, the lender can declare the loan repayable, which in practice means the property is sold. Australian consumer credit law requires notice and provides hardship pathways, so this is rarely immediate.
When and How the Loan Is Repaid
Repayment is triggered by an event rather than a date. Five points govern when and how the balance is cleared:
Sale of the Property
Selling triggers repayment of the full balance from the proceeds at settlement, with whatever remains yours to keep. Some lenders allow the loan to be moved to a replacement property instead, subject to that property meeting their criteria, which is worth asking about before you list.
Move Into Residential Aged Care
A permanent move into residential aged care generally makes the loan repayable, because the property is no longer your principal residence. That timing can be awkward, since a refundable accommodation deposit may fall due at the same time. Some products carry an aged care option allowing a set period before repayment, and that is a question for the application stage rather than the crisis.
Death of the Last Borrower
On the death of the last surviving borrower, the estate becomes responsible for repayment, usually by selling the property. Lenders typically allow the executor a period to arrange that sale, often up to 12 months, with interest continuing to accrue meanwhile. Beneficiaries who want to keep the home can repay the balance from other funds instead.
Repayments Along the Way
Repayments can usually be made at any time, in part or in full, and every dollar repaid reduces the base that interest compounds on. Check whether the contract permits redraw before repaying money you may need again later.
Protection Against Negative Equity
Reverse mortgages written from 18 September 2012 carry negative equity protection under Australian law. Neither you nor your estate can be required to repay more than the market value of the property, and the lender must accept the sale proceeds in settlement. Contracts predating that date should be checked, because the protection may not apply.
How the Home Equity Access Scheme Compares
A government alternative sits alongside the commercial market and is frequently cheaper, though it is built for income support rather than large one-off amounts. The Home Equity Access Scheme (HEAS) differs on four points:
Eligibility and Security
HEAS is open to Australians who have reached Age Pension age, currently 67, whether or not they receive a pension. Veterans and their partners apply through the Department of Veterans’ Affairs (DVA) instead. Security is taken over Australian real estate you or your partner own, you choose how much of it to offer, and adequate building insurance must be maintained.
Payment Structure and Limits
Payments are made fortnightly, and your pension and loan payment combined cannot exceed 150% of the maximum fortnightly pension rate. Lump sums are available as advance payments, capped at 50% of the maximum annual pension rate in any 26 fortnights, with no more than two advances in that period. Taking an advance reduces the fortnightly amount available for the following year.
Interest Rate and Compounding
The rate is set by the Minister for Social Services and has been 3.95% a year since January 2022, compounding fortnightly on the balance drawn rather than on the amount you are eligible to receive. That sits well below commercial reverse mortgage pricing, which is why HEAS is worth checking first. The rate can change, and the figure published by Services Australia applies from the date it takes effect.
Repayment and Portability
Voluntary repayments can be made to Services Australia or DVA at any time, and you can stop the payments whenever you choose without penalty. A negative equity guarantee applies to HEAS loans, with limited exceptions. Where you sell the property, the loan can generally be transferred to another Australian property, including a new home, rather than falling due immediately.
What You Keep and What the Loan Costs
The worry underneath most reverse mortgage enquiries is not the interest rate. It is the fear of signing something that quietly takes the house away from the family, or of discovering afterwards that a cheaper path existed.
That fear tends to settle once the mechanics are on paper. You keep the title. Australian law caps what can ever be owed against the value of the property. The projections show a range of outcomes under assumptions you set, and HEAS gives you a benchmark to price any commercial offer against. None of that requires you to decide anything today.
A Melbourne mortgage broker is bound by the Best Interests Duty, so any recommendation has to stand up to your circumstances rather than a lender’s targets, including when the answer is a smaller amount, a different structure or nothing at all.
If you are weighing equity release against the alternatives, Loanworx Group can run the projections with you before anything is signed. Call 1300 562 696.
Frequently Asked Questions (FAQs)
1. Can I still sell my house if I have a reverse mortgage?
Yes. The title stays in your name, so you can sell whenever you choose. The full balance, including accrued interest and fees, is repaid from the sale proceeds at settlement and the remainder is yours.
2. Do I pay tax on money from a reverse mortgage?
Borrowed money is not income, so the funds are generally not taxable. What can change is your position under the Age Pension income and assets tests once the money is held as cash or invested, since the family home is treated differently from the proceeds drawn out of it. The Financial Information Service (FIS) at Services Australia explains that effect at no cost.
3. How much interest will I actually pay?
It depends on the amount drawn, the rate, the fees added to the balance and how many years the loan runs. The last of those usually has the largest effect. Ask your lender or broker for the ASIC projections modelled at a rate higher than today’s, since these loans carry variable rates only.
4. What happens if I outlive the equity in my home?
The balance can grow to approach the property value over a long period, particularly where a large lump sum was taken early. Negative equity protection means you cannot be pursued for a shortfall, but it does not restore equity already consumed. Where funds may be needed later for aged care, asking about an equity protection option at application is more useful than discovering the position at 85.
5. Can my partner stay in the home if I die first?
Where both partners are borrowers on the loan, the survivor generally continues living there under the same contract. Where only one partner is on the loan, the survivor may be required to leave once the balance falls due. This is worth confirming in writing before signing rather than assuming.
6. Is the government scheme better than a reverse mortgage from a lender?
HEAS is usually cheaper, but its fortnightly cap limits how much you can reach at once. A commercial reverse mortgage offers bigger lump sums and more flexible structures at a materially higher rate. Many people qualify for both, and comparing the two properly is worth doing before committing to either.
This article is general information only. It does not take into account your objectives, financial situation or needs, and it is not legal, financial or taxation advice. Reverse mortgages and equity release are long-term decisions with consequences for your pension entitlements, your aged care position and your estate. Interest rates, fees, lender policies and government scheme rules change. Before acting, speak with a qualified professional, obtain independent legal advice and contact the FIS about the effect on your entitlements.
