How do Reverse Mortgages Work?

Reverse mortgages are the most popular form of home equity release for retirees. A reverse mortgage allows you to draw on your home equity to improve your retirement income. You don’t need to make regular repayments and you can continue to live in your home.

Key Points:

• You remain the owner of your home.
• You can continue to live in your home.
• No repayments are required.
• Your reverse mortgage is repaid when your property is sold.
• As with any loan, it’s a good idea to get independent financial or legal advice before you take out a reverse mortgage.
  

This guide is opinion only and should not be taken as financial advice. Check with a financial professional before making any decisions. We do not compare all products in the market. Not all products available from our panel of lenders are compared and not all products are available to all customers.

Beat My Loan Pty Ltd (ABN 85 613 044 581) of 222 Pitt Street Sydney (Ph: 1300 904 624) is a Credit Representative (Credit Rep Number 489939) of Alternative Media Pty Ltd ABN 17 149 089 716 (ACL Number 486326) and owns and operates the website Home Loans Australia. Compare Club's home loans team compares selected credit products from a panel of lenders for regular loans and a smaller panel of providers for reverse mortgages. We do not compare all products in the market. For more information about our services, please read Compare Club's Credit Guide, and for key information on reverse mortgages, view our fact sheet here.

A reverse mortgage allows you to borrow money using the equity in your home as security.

If you're aged 60 or over, the most you can borrow is likely to be 15-20% of your home’s value. As a guide, add 1% for each year you're over 60 years old. So, at 65 years of age, the most you can borrow will be about 20-25% of the value of your home.

The minimum loan amount varies, but reverse mortgage minimum loan amounts typically start at about $10,000. Depending on your age and the policy of your lender, you’re able to receive your borrowed amount as a:

• regular income stream,
• line of credit,
• lump sum, or a
• combination of the above.

Updated 22 July 2024

by Gillian Clive 

What are the benefits of a reverse mortgage?

Here are a few things to consider before taking out a reverse mortgage:

Reverse mortgage interest is calculated on your daily outstanding balance, and added monthly to your loan account, meaning your loan balance increases over time.

The amount of equity you can draw down is determined by your age, property value, and other loan approval criteria.

Drawing funds from your property now, reduces what you could potentially access later on.

Variable interest rates mean that there will be changes to what you're charged over time.

There are fees and charges for setting up your loan, depending on what options you select, so you’ll want to ensure these set-up costs remain within your budget.

If I don’t have to make any monthly repayments, how does my reverse mortgage get repaid?

Your full loan balance is paid off once you no longer need your property (i.e., when you die, or move out permanently - for example, into a nursing home or respite care).

Your home loan is repaid in full, including accumulated interest and fees, when:

• you sell your home,
• you move out of your home, or
• your deceased estate sells your home.
  
  You may be able to make voluntary repayments earlier. You're also protected from your property falling into negative equity.
  

How reverse mortgages work:

Can I move out of my home if I want to?
Yes, you can move out of your home after you’ve taken out a reverse mortgage - but be aware that once you move out permanently, your entire loan balance may become payable within a shorter time frame than originally expected (usually 12 months).