Buying a home in Australia today is tough—really tough. With skyrocketing prices and tightening borrowing rules, more first-time buyers are looking at longer loan terms to get their foot in the door. Some lenders are even offering 40-year mortgages as a way to “ease the burden.”
Sounds like a good idea on the surface, right? And if the parents offer to become ‘Bank of Mum and Dad’ for the home deposit via a guarantor loan it can be possible to get the kids into the housing market much faster.
But before you offer to become ‘Bank of Mum and Dad’ or dip into your retirement savings to help your kids lock in a 40-year loan, it’s worth asking:
Is this really the best way to help? Or are we just kicking the can down the road?
Let’s unpack it.
The Debt Rollercoaster That Keeps Going… Into Retirement
We used to think of retirement as the time to enjoy life, free from the weight of mortgages or credit card bills. But that’s changing—fast.
According to a recent report, 23% of Australians over 55 still have mortgage debt, up from 19% just a decade ago. That’s an extra 581,000 older Aussies carrying debt into what should be their golden years.
And it’s not just home loans. Many over-55s are juggling personal loans, credit cards, and even business debts—leading to financial stress and anxiety.
[ ALSO READ: Retiree Debt Trends: Home Equity Release Helps Over 60’s Cope With Soaring Debt ]
The Allure of the 40-Year Mortgage (And Why It Can Be A Trap)
The idea behind a 40-year mortgage is simple: stretch out repayments so monthly costs are lower. But here’s the kicker—you’ll end up paying way more interest over the life of the loan.
According to Canstar, if you borrow $600,000 at 5.99% over 40 years instead of 30, your monthly repayments might be $296 cheaper—but you’ll fork out over $240,000 more in interest over time.
That’s a serious long-term hit, especially if your kids will eventually refinance or sell the property before the loan is even close to paid off.
If you’re like many older Australians, you might be thinking of helping your children or grandchildren get into the market. It’s often called ‘the bank of Mum and Dad’. Maybe you’ve even been asked to act as guarantor, dip into your super, or use your own home as collateral.
But here’s a reality check: with rising costs and unexpected expenses, many Aussies are now reaching retirement still in debt.
Instead of stretching yourself—or your kids—thin, there’s another way.
A Smarter Option: Reverse Mortgage
If you’re over 60 and own your home (or most of it), a Reverse Mortgage might offer a safer, more flexible way to help your family—without putting your retirement at risk.
Here’s how it works:
- You tap into the equity in your home.
- You can access funds as a lump sum, a regular income, or even a line of credit.
- No monthly repayments are required—the loan is repaid when you sell the home, move into aged care, or pass away.
It’s a great way to consolidate debt, improve cash flow, or even help the next generation—all while staying in control. And if you are thinking of releasing equity to help funds the kids’ home deposit, then there’s a few things you can do to minimise the cost:
- Pay the monthly interest so the debt doesn’t grow
- Use the Reverse Mortgage as an interim solution only, until you downsize and clear all debt in say 3-5 years
A Word of Caution: Centrelink Gifting Rules
If you’re receiving (or planning to receive) the Age Pension, be aware of Centrelink’s gifting rules before giving large amounts of money to your children.
Under current rules:
- You can gift up to $10,000 per financial year, and
- A total of $30,000 over five years,
without it affecting your pension entitlements.
If you exceed these limits, the excess may still count as your asset and could reduce your pension. So it’s essential to get financial advice before giving financial help to family—whether through a Reverse Mortgage or any other means.
[ ALSO READ: Centrelink Home Equity Access Scheme (HEAS) vs Reverse Mortgage Loans ]
But What’s the Catch with Reverse Mortgages?
Like any financial product, reverse mortgages aren’t one-size-fits-all. Here’s what you need to know:
- Interest compounds over time, which means your home equity reduces the longer the loan remains unpaid.
- It may reduce the value of your estate—but government regulations include Negative Equity Protection, so you’ll never owe more than your home is worth.
- The right structure and lender can make a big difference—independent financial advice is key.
Helping your kids buy a home is a beautiful thing—but becoming ‘Bank of Mum and Dad’ should not come at the cost of your own peace of mind.
A 40-year loan might seem like a win today, but the future interest burden can be massive. If you’re already dealing with your own debts, or living on a fixed income, a Reverse Mortgage could be a smarter way to create flexibility and preserve your financial independence.
Just be sure to understand the full picture—including Centrelink implications—before making any decisions.
👉 Want to learn more? Click here to download our FREE Reverse Mortgage guide.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Please consult a licensed financial advisor before you make any decision.