Reverse Mortgage Australia

It’s worth noting that the major Australian banks—Commonwealth Bank, Bankwest, NAB, ANZ, St George and Westpac—no longer offer Reverse Mortgages. Although they continue to service existing customers, for various reasons they have all stopped providing any new loans. Most of these institutions exited the market over the past decade, which has left a gap now filled by niche and specialist providers.

There are currently only about 7 to 8 small banks and non-bank lenders who are actively offering new Reverse Mortgage loans in the Australian market. Seniors First, the leading specialist Reverse Mortgage broker, provides access to the top four lenders who between them fund in excess of 95 per cent of new loans.

When choosing a Reverse Mortgage lender, it’s important to do due diligence on the provider (or rely on a broker to do this for you). The lenders approved to be on the Seniors First panel have all been scruitnized for product features, fees, customer service, and fair loan contract terms that align with our values.  

When thinking about releasing home equity via a Reverse Mortgage it pays to consider the future impact of the loan on three key aspects of your life:

• Lifestyle 
• State of mind  
• Financial

The impact on lifestyle is almost always positive. Access to extra cash for living, and to fund the things you’ve been waiting for such as holidays, renovations, or a new car invariably improves retirement lifestyle.

However with some lenders you must stay in the home, and there are restrictions on how long you can be away or even if you can rent out the property. This may limit your lifestyle options, especially if you intend to travel extensively or use the home for AirBnB income. And if you move out—such as transitioning into aged care or moving in with family—the loan typically becomes repayable within 12 months. This can place pressure on your finances or force the sale of your home.

The impact of a Reverse Mortgage on state of mind is also usually positive, as access to more cash typically reduces financial stress. This is especially so in cases where the loan funds are used for debt consolidation, or to pay overdue council rates or strata levies. 

It’s common for potential borrowers to have some doubts at the start of the process, but these are usually resolved as a better understanding emerges of how Reverse Mortgage in Australia really works. Information and education is key. However, in some cases people who are predisposed to high anxiety may not be suited to a Reverse Mortgage. Unless such a borrower is able to reconcile concerns about potential downsides, and get comfortable with the decision, then for state of mind it may be best not to proceed. 

One of the primary financial downsides of a Reverse Mortgage is that, unless you make regular voluntary repayments, interest will compound. Over the long term this can potentially cause the amount you owe to grow substantially (especially if the borrower draws a large lump sum at a young age). However, a specialist broker can often mitigate this by advising on a good loan structure that draws the funds gradually over time in order to preserve more equity. 

Another downside is that a Reverse Mortgage will reduce home equity. As the loan balance increases, equity held in the security property typically decreases (although this may be offset by a subsequent rise in the capital value of the home). This can significantly reduce the value of a borrower’s estate and the inheritance left for family, although some lenders offer a ‘protected equity’ feature that can limit the effects of this. 

However there is no risk of negative equity (where you owe more than the value of the home) because all lenders are mandated by law to offer a No Negative Equity Guarantee.  

A Reverse Mortgage can also limit future financial options. If a large portion of the home’s value is released, it may be harder to access other loans or refinance later should financial needs or circumstances change.

Borrowers must also understand that the property must be maintained. You are required to keep the home in good repair and ensure it remains insured. If these basic responsibilities aren’t met, it could be considered a breach of the loan terms, potentially triggering early repayment requirements.

The costs and fees associated with establishing Reverse Mortgages is also a downside. These can include setup fees, ongoing service or account fees, legal fees, and discharge fees. Collectively, these expenses may eat into the usable funds you receive from the loan (if you don’t have enough cash already to cover them).

Another risk is that, in rare cases, the Reverse Mortgage may affect Age Pension eligibility. If you take the funds as a lump sum and invest, gift or loan the money then Centrelink could reduce or eliminate your Age Pension entitlements. This risk can easily be mitigated by checking with Centrelink first. 

Reverse Mortgages are not suitable for short-term needs. They’re designed for people who plan to stay in their home long-term. If you sell the home soon after taking out the loan, the costs involved may outweigh the benefits received.

Lastly, Reverse Mortgages can have an impact on estate planning. Family members might not be aware of, or may not agree with, your decision to take out a Reverse Mortgage. This can lead to confusion or disputes after you pass away, particularly if the home must be sold to repay the loan. However with good planning, legal advice, and clear documentation this downside can also be mimimised.  

Yes, you can make voluntary payments on a Reverse Mortgage in Australia—but you are not required to. Most Australian Reverse Mortgage products allow borrowers to make voluntary payments at any time. These payments can include:

• Interest payments – to stop or slow the growth of the loan balance.
  
• Partial principal repayments – to reduce the outstanding balance.
  
• Full repayments – if you decide to pay off the loan early.

There are no penalties for early repayment with most lenders, but it may be more difficult to redraw the voluntary payments back out again at a later date with some lenders. It's wise to consult with a specialist broker, or check your loan contract for any conditions.

In addition, some lenders have alternative Reverse Mortgage products that offer a lower interest rate for a program of regular repayments on the loan. These product variations can be a good option for borrowers who are still working, or those with the financial means to service the monthly interest.

The Home Equity Access Scheme (HEAS) is the Australian Government’s version of a Reverse Mortgage. It allows older Australians to unlock some of the equity in their home to receive regular fortnightly payments, helping to supplement their income in retirement. This scheme is administered by Services Australia and is available to people of Age Pension age—whether they receive a full pension, part pension, or even if they don’t currently qualify for any pension but meet the age and residency rules.

HEAS is designed to provide a safe and steady income stream, not a significant lump sum. Borrowers can nominate how much they wish to receive each fortnight (up to 150% of the maximum Age Pension), and the payments are made directly into their bank account. Interest is charged at a government-set rate and is compounded, meaning the loan balance grows over time. However, repayments are completely voluntary—the loan is generally repaid when the home is sold or from the estate after death.

While both the HEAS and standard Reverse Mortgages serve the purpose of releasing home equity without needing to sell the property, there are some important differences.

A Reverse Mortgage is offered by private lenders or banks, generally to homeowners aged 55 or over. Which means younger borrowers can access Reverse Mortgages, compared with the HEAS.  These loans are more flexible in terms of how the money is accessed—you can usually choose a lump sum, a regular income stream, a line of credit, or a combination of these. This makes them suitable for people who need a large upfront payment, for example, to pay off debts, fund home renovations, or cover major health expenses.

In contrast, the HEAS provides regular fortnightly payments and limited lump sum. This makes it better suited to people with simple needs, who just want to top up their regular income in retirement without borrowing a large amount all at once.

Another key difference is the interest rate. The government’s HEAS charges a lower interest rate, whereas standard Reverse Mortgages have market-based interest rates that are usually higher, depending on the lender. Like HEAS, commercially available Reverse Mortgages also feature compounding interest and require no repayments until the home is sold or the borrower passes away. Both options include a No Negative Equity Guarantee, as required by Australian law.

However,  Reverse Mortgages can impact Age Pension entitlements in some rare cases. The HEAS does not trigger this issue because payments are treated differently under social security rules.

In terms of fees and costs, the HEAS is minimal or even fee-free in many cases, while bank Reverse Mortgages often come with establishment fees, legal fees, valuation costs, and ongoing service fees—which can erode the amount of usable equity.

Lastly, with a commercial Reverse Mortgage, the loan size can be larger, depending on your age and property value, giving more financial flexibility. HEAS, on the other hand, is capped at 150% of the Age Pension.

If you're seeking low-risk, regular top-ups to your pension without affecting your Age Pension entitlements, the HEAS is an excellent option. It’s government-backed, cost-effective, and provides peace of mind with a No Negative Equity Guarantee.

If you want to release equity at a younger age, need a lump sum, greater flexibility, or want to borrow larger amounts, a Reverse Mortgage may be more suitable—but you’ll need to consider higher costs, possible pension impacts, and more complexity.

For a more detailed breakdown on the comparison read this article