• As seen on TV
 1300 745 745
Check Eligibility

How do Reverse
Mortgages work?

CHECK ELIGIBILITY

FREE Reverse Mortgage Australia guide from Seniors First. 30,000+ downloads since its first edition in 2008.

Get the FREE guide

How Reverse Mortgage Works in Australia

A Reverse Mortgage is a loan designed for Australian homeowners aged 55 and over. It lets you unlock equity from your home without selling or moving. Unlike a standard mortgage, you don’t make monthly repayments. Instead, the amount borrowed plus any accrued interest and fees are repaid when you sell your home, move permanently into aged care, or pass away.

This can provide a much-needed financial buffer in retirement to cover living costs, medical expenses, home improvements, or even just peace of mind.

Table of Contents

 What is a Reverse Mortgage?
Eligibility and Borrowing Limits
Common loan purposes
How You Can Receive the Funds
How Interest Calculation Works (Compounding Effect)
How to save interest - Reverse Mortgage Golden Rule
Impact on Your Estate Value
Loan Repayment Triggers
Will a Reverse Mortgage Affect My Pension?
Protections Under Australian Law
Risks & Benefits to consider
Frequently Asked Questions

What is a Reverse Mortgage? (Simple Definition)

Reverse Mortgage is a type of loan where you borrow against the value of your home. You remain the legal owner and can stay in the property for life, provided you meet basic obligations like paying council rates, home insurance, and maintaining the property.

Key takeaway

You don’t need to make regular repayments on Reverse Mortgages. The loan plus any accrued interest and fees is paid back when the property is eventually sold.

Check eligibility

Eligibility and Borrowing Limits

Reverse Mortgages are only available if:

  • You’re 60 years or older (some lenders may start at 55).
  • You own your home in Australia.
  • The property meets lender requirements (location, condition, and minimum value).

Borrowing Limits by Age

The amount you can borrow increases as you age.

  • At 60 years old: roughly 15–20% of the home’s value.
  • Each year older: borrowing capacity rises by ~1%.
  • At 80 years old: up to 35–45% of the home’s value.

Example: On a $900,000 home, a 65-year-old might access $180,000, while a 75-year-old may access $270,000.

Common Loan Purposes

Many Australian seniors use a Reverse Mortgage to improve quality of life in retirement.
The funds are flexible and can be used for almost anything, but the most common purposes include:

Supplementing retirement income

Covering everyday bills and living expenses, or for "life's little luxuries".

Debt repayment

Clearing mortgages, credit cards, or personal
loans to reduce financial stress.

Medical and aged care costs

Paying for in-home support, equipment, or aged care accommodation.

Family support

Gifting money to children or grandchildren, such as helping with education or a house deposit.

Home improvements

Upgrading kitchens, bathrooms, or making the home more accessible (ramps, rails, modifications).

Lifestyle and travel

Enjoying retirement by funding the purchase of a new car, holidays or hobbies.

Key takeaway

A Reverse Mortgage can provide financial freedom now, but always consider how borrowing now may reduce future options.

Check eligibility

How You Can Receive the Funds

Reverse Mortgage loans offer flexibility in how you can draw down the money:

1. Lump sum - take a one-off cash amount, upfront.

Lenders can provide you a lump sum money at the start of your loan. Policies between lenders vary, but some have a minimum drawdown for this option of $10,000, unless you are planning to use the money for in-home aged care. On top of the lump sum, you can receive the proceeds as needed through the other available options.

PERFECT FOR: This option is ideal for debt consolidation, home loan refinance, home renovation, new car purchase, medical expenses.

2. Regular instalment plan (income stream) – receive ongoing monthly or quarterly instalments over time.

Receiving regular advances is ideal if you are planning to draw on your loan gradually, to supplement your retirement income. This option will allow you to set a regular drawdown payment (monthly, quarterly, or yearly) for up to 10 years.

The regular amount you receive feels like 'income' but it is actually a small portion of your home equity. You can set the amount you receive from hundreds, to thousands of dollars each month. The limit is determined by the value of your home, your age and the term schedule.

PERFECT FOR: ‘topping up’ the Age Pension or limited retirement income to better cover living expenses, or for home care costs.

3. Cash reserve / line of credit – set aside a pool of funds you can access later if needed.

You can unlock your home equity to set up a cash reserve that you can easily access anytime you want. The good thing about this option is that you will only pay interest on the cash drawn, as you draw it down.

Depending on the lender, there may be no minimum drawdown amount on a cash reserve facility. Some lenders even allow you to access this money directly by debit card at ATM's.

PERFECT FOR: ‘rainy day’ funds for emergencies and unexpected expenses, or occasional special treats such as holidays.

4. Combination – mix lump sum, income, and cash reserve to suit your situation.

A combination reverse mortgage is very popular. About 8 in 10 Seniors First customers choose some form of combination of lump sum, cash reserve or income stream for their reverse mortgage loan structure.

According to a Seniors First survey in 2024, 77 per cent of Reverse Mortgage borrowers rate the importance of a cash reserve option as 'very high' in their choice of lender.

No Regular Repayments: How It Really Works

One of the biggest advantages of a Reverse Mortgage is that no regular repayments are required.

  • How it works: Instead of paying monthly instalments, the interest is simply added to your loan balance (capitalised).
  • When you repay: The full balance (loan + interest) is only due when you sell your home, move into aged care, or pass away.
  • Optional repayments: Most lenders do allow voluntary repayments at any time, which can help reduce the compounding effect of interest.

Key takeaway

“No repayments” does not mean the loan is free. The debt grows over time due to compound interest (unless you pay monthly interest).

How Interest Calculation Works (Compounding Effect)

Interest on a Reverse Mortgage is calculated daily and 'capitalised', which means the monthly interest charge is added onto the existing loan balance. Over time, this causes the balance to grow faster than with a traditional loan.

  • Example: If you borrow $100,000 at 7% interest, after 10 years (with no repayments), the debt may grow to around $200,000.  
  • Because there are no regular repayments, the effect of compounding is stronger (however you can make voluntary repayments at any time, which will slow this effect)

The biggest drawback of Reverse Mortgages is the compounding interest, which reduces the equity in your home over time. However, it’s important to understand that the home value should also compound over time, and that future capital gains on property may partly, or fully, offset interest costs. CoreLogic reports that Australian home values surged 39.1% in the five years to 2025, representing an increase in the average home value of $230,000.

Check eligibility

How to save interest:

Reverse Mortgage Golden Rule

It’s little known that borrowers can enjoy very substantial interest savings on Reverse Mortgage loans by structuring the loan in certain ways. 

In fact, there is what we call the "Reverse Mortgage Golden Rule": draw as much of the loan as possible, gradually over time  (instead of as an upfront lump sum).

This principle is the foundation for our Home EquiSaver™ method, exclusive to Seniors First. 

Home EquiSaver™ is the approach Seniors First brokers use to find the optimal loan structure for each borrower in order to achieve two key objectives:

  • Fulfil the personalised funding needs of the individual borrower, whilst ALSO;
  • Minimising the long-term interest cost in order to preserve more home equity 

The output of the Home EquiSaver™ method is the Compound Interest Savings Ratio (CISR). This ratio is expressed as a percentage of the total potential interest savings that the loan structure could deliver, compared to the interest cost that would otherwise apply on a full lump sum loan. 

The Compound Interest Savings Ratio (CISR) is different for each borrower, depending on the proportion of total loan funds that is taken as an upfront lump sum, versus gradually over time. The higher the ratio, the more interest cost potentially saved  - and the more benefit derived from Home EquiSaver™ to the borrower.

To provide the most meaningful results the following assumptions apply:

  • For illustration purposes, the calculation is done over a 10 year term with a prevailing market interest rate  (note: most Reverse Mortgages actually have no set term) 
  • Any funds not drawn as an upfront lump sum (such as cash reserve and instalment plan funds) are assumed to be drawn monthly in equal instalments

Home EquiSaver™ Example 1:

Total loan facility amount: $100,000

Interest rate: 8% Term: 10 years* 

*Most Reverse Mortgages have no set term, this is for illustration purposes only.

Option A: take all funds as upfront lump sum - $121,000 interest cost (over 10 years)

Option B: take all funds as Instalment plan - $52,000 interest cost (over 10 years)

Net interest saving (NIS) with option B: $69,000 

Compound Interest Savings Ratio (CISR): 57% in potential savings with this loan structure

Compound Interest Savings Ratio (CISR)

I

57%
SAVED (CISR)
*less interest

Interest Cost Comparison
(10 years)

Home EquiSaver™

Example 2:

Total loan facility amount: $100,000

Interest rate: 8% Term: 10 years*

*Most Reverse Mortgages have no set term, this is for illustration purposes only

Option A: take all funds as upfront lump sum - $121,000 interest cost (over 10 years) 

Option B: draw $50,000 as a lump sum and $50,000 as instalment plan - $87,000 interest cost (over 10 years) 

Net interest saving (NIS) with option B: $34,000 

Compound Interest Savings Ratio™ (CISR): 28% in potential savings with this loan structure

Compound Interest Savings Ratio (CISR)

I

28%
SAVED (CISR)
*less interest

Interest Cost Comparison
(10 years)

A specialist Reverse Mortgage broker is best placed to help you get the right loan structure. The Home EquiSaver™ method is exclusive to Seniors First. 

Aside from paying the interest charge each month so tha the debt doesn't grow, Home EquiSaver™ is the best way for borrowers to:

  • Generate big savings on reverse mortgage interest costs 
  • Mitigate the compounding interest effect
Check eligibility

USE A BROKER - GET THE RIGHT LOAN STRUCTURE

Enquire with Seniors First to discover your personalised Compound Interest Savings Ratio (CISR) Find out how much the right loan structure can your reduce potential interest cost, with our Home EquiSaver™ method. It’s 100% exclusive to Seniors First.

Impact on Your Estate Value

Because the Reverse Mortgage loan balance typically grows, your estate (what you leave to beneficiaries) may be reduced. For families, this can mean less inheritance.

However, protections exist:

  • No Negative Equity Guarantee – you can never owe more than the value of your home.
  • Any remaining equity after the loan is repaid still passes to your estate.

EXPERT TIP:

You can limit any negative impact on the estate value by paying the monthly interest to stop the loan balance growing. Some lenders also have a ‘protected equity feature’ which allows you to effectively quarantine a portion of the home equity for beneficiaries.

Loan Repayment Triggers

A Reverse Mortgage does not require repayments while you live in your home, but it must be repaid when certain events occur;

You sell your home.

You move permanently into aged care (some lenders);

You pass away (the loan is repaid from your estate, usually via sale of the property).

If a surviving spouse is listed as a co-borrower, they can continue living in the home until they also leave or pass away.

Will a Reverse Mortgage Affect My Age Pension?

GOOD NEWS: in the vast majority of cases Reverse Mortgage loans don't affect Age Pension entitlements. However it is possible under some circumstances,  depending on how the funds are used. Here are two use cases that are more likely to cause problems:

  • Loan funds deposited into savings or investments. Any money from the loan invested counts toward the Assets Test and may reduce your pension.
  • Gifting or loaning money to family. Loans or cash gifts are also counted as an assessable asset and can reduce entitlements, depending on the amount

Every case is different, so it’s always best to check with Centrelink’s Financial Information Service (FIS) before loan approval.

DID YOU KNOW:

The family home (principal place of residence only) is an exempt asset for the Age Pension test. So any Reverse Mortgage loan funds used on repairs or renovation will not impact entitlements.

Protections Under Australian Law

Reverse mortgages are the most highly regulated credit product in Australia.
Reverse Mortgage loans provided through specialist brokers, using recognised lenders, are very safe.

No Negative Equity Guarantee

this is a protection enshrined in law that you can never owe more than your home’s market value. All Reverse Mortgage lenders are required by law to provide a guarantee that should the debt grow to such level over time that it exceeds the value of the security property realised at the sale, then neither the borrower nor the beneficiaries of the estate, can be pursued for this shortfall after the sale has been concluded (as long as the borrower is not in default of the loan contract).

Put simply, if the sale of the security property is not enough to cover the debt, the lender bears the loss.In addition, the lender cannot force the borrower from the property if they think that the debt may have grown to a level where a shortfall may occur. 

Lifetime occupancy

You and your spouse have the right to live in your home for life, as long as you meet the loan conditions.

Mandatory legal advice

Lenders generally require you to seek independent legal and/or financial advice before signing. This provides an extra fail-safe check to ensure that you have understood

DID YOU KNOW:

Reverse Mortgage borrowers actually get a higher level of protection by going through a mortgage broker for their loan (as opposed to going direct to a lender). This is because brokers must abide by Best Interest Duty (BID) regulation, introduced in 2021. Lenders themselves do not have to meet this higher standard of customer care.

Risks & Benefits to Consider

Risks

  • Interest accumulation – loan balance can grow over time due to compounding.
  • Reduced inheritance – less equity may be left for children or beneficiaries.
  • Pension impacts – could reduce or eliminate Age Pension (in rare cases)
  • Future flexibility – borrowing heavily now may limit aged care or downsizing options later.

Benefits

  • Stay in your home - avoid or delay downsizing. Enjoy your current home and community as long as you want
  • Access tax-free cash - the funds are your home equity, they are not taxable
  • Flexible drawdown options - lump sum, income plan, cash reserve)
  • Protected by Australian law (No Negative Equity Guarantee)
Check eligibility

Rated 4.9 stars on

“Sincere thanks to Andrew and Seniors First .. the loan has been life changing.”

Deborah Collett

lois kean
11:13 08 Jul 25
Thank you to Palka for all you have done to give advise and secure a Reverse Mortgage.
You have given me outstanding service, guidance and help. You made clear to me the advantages, disadvantages and outcomes of a Reverse Mortgage.
You reassured me about the right timing and steps to take in the whole process.
I couldn't be more grateful and very satisfied knowing that my home loan is paid and I have enough to live comfortably.
Pam Spekking
02:38 03 Jul 25
My experience with Adam Oakley at Seniors First was exceptional. He explained everything in detail to me and made me feel comfortable and confident with my choices. I would highly recommend both Adam and Seniors First to anyone considering a reverse mortgage.
Nina Wright
00:52 29 Jun 25
Angela was outstanding in her dealings with us. She was extremely thorough, helped us work through our application, made sure we understood the whole process. She was with us all the way, maintaining regular contact. Angela made it a comfortable seamless experience.
Diane Vince
06:33 19 Jun 25
I can’t speak highly enough of Seniors First Reverse Mortgage Brokers. From the moment I made contact with them regarding a possible application for a Reverse Mortgage
I felt extremely comfortable working through the process. There was no pressure to continue but I am extremely glad I decided to proceed.
Seniors First were very considerate and concerned that I completely understood the pros and cons of the decision I was making. I felt at ease discussing the very involved process through very friendly and supportive phone conversations and via many emails. I greatly appreciated how I was kept up to date with the applications progress. Contact about any concerns was always welcome.
I unreservedly recommend their thorough unquestionable service. I am amazed at how smooth the process was, especially as it resulted in a very positive outcome.
Thank you for your friendly, unbelievable guidance and support.
Suzzanne Poré
04:13 18 Jun 25
I don’t normally write reviews, it’s never that often that I come across great people, or companies as a whole. I just want to set a scene so to speak, because I know anyone reading this is in the same place I was in. The past few years have had some of the most challenging health issues, then chuck in a hip replacement on top. The last 12 months have been the most expensive. My home is literally crumbling down around me, I won’t list things, it will make your mind boggle.
I had heard about reverse mortgages a number of times over the past couple of years, very different from a standard mortgage. It made me a little nervous, but I did research. I rang a couple of brokers, what’s your email, if you have any questions, ring me back.
Adam Oakley from Seniors First, was the first one to truly speak to me. Answered all my weird questions, gave me so much information, and helped me all the way. Some critical information such as Centrelink, I checked up on. Adam was spot on with what he had told me. Do your own research, government web sites, brokers, and lenders so you can understand what is being explained. Taking on anything financial is a huge step, being guided (handheld, in my case) by Adam is a blessing.
Rob Perriott
01:30 17 Jun 25
We had an excellent experience dealing with Seniors First and their consultant Adam Oakley. The information provided to help us make a final decision was first class. Adam is very knowledgeable open and fast to respond. I highly recommend Seniors First.
Giovanna Burgess
02:32 13 Jun 25
I had a very positive experience with Seniors First when arranging my reverse mortgage.
The kindness and understanding shown by my broker made the entire process smooth and reassuring. He truly listened to my needs and worked hard to achieve the best possible outcome for my situation. I’m genuinely grateful for the support I received and would highly recommend Seniors First for anyone considering their financial options in later life.
Neil Carr
05:08 09 Jun 25
Seniors first reverse mortgage definitely ticks all the boxes as a gold star product.
Richard Chapman explained very clearly from the outset how this works and held our hands throughout the whole process, even when it got a little tricky with an outstanding level of professionalism and patience i might add.
If you are reading this and are contemplating a reverse mortgage look no further call Richard Chapman at seniors first.....first.
Brenda Lindquist
05:47 27 May 25
Don't know what I would have done if it wasn't for Angela. She's really good at what shes does and she spooned fed me all the way to settlement. I have no hesitation in recommending Seniors First & especially Angela, where speaking with her was like speaking with a friend. Great girl & honestly she will be my first point of call should I have another adventure.
Geoff Lam
05:35 23 May 25
I'd like to sincerely thank Adam Oakley from Seniors First who'd help me secure my reverse mortgage with Inviva.Adam was very thorough and professional when guiding me through all the steps. Adam constantly created a lot of confidence and showed a personal interest and patience during his follow-up. I highly recommend Adam from Seniors First if you family or friends are contemplating a reverse mortgage. Thank you again Adam. Geoffrey Lam.
Brenda Kendall
14:11 16 May 25
Thanks very much to Adam Oakley who helped us though the process of choosing which bank would be our best option for our reverse mortgage. I had done quite a bit of research before choosing a broker to help us though this. We even watched a seminar that Adam had participated in. The brokers all know the rules and regulations, banking and government stuff, that is involved to make sure that we knew what the mortgage meant to our finances and what paperwork we had to supply and when. Luckily we have had a couple of businesses over the last 15 years and had a good idea of some of the processes so we were able to complete all the paperwork fairly quickly and send it to Adam. Much to our surprise the whole process only took about 5 weeks from when Adam first replied to my request for information and when we got settlement on our mortgage. Thank you very much to Adam and everyone at Seniors First in the background that might have helped to make this so easy for us.
Elizabeth O'Regan
04:38 15 May 25
Angela Giokaris facilitated our reverse mortgage with Seniors First. She was extremely helpful, having a great knowledge of the products and went the extra mile to ensure we both understood the various options which helped us decide on the most suitable option for our situation. She was always available to answer any queries we had. We have no hesitation in recommending her to other prospective clients.
Vicki Fraser
04:08 05 May 25
Thank you to Angela, her support was invaluable. She helped guide us through the process in a very professional, friendly and efficient manner. Her help was greatly appreciated, we couldn't have done it without her. Nothing was too much trouble.
Margaret Dalos
09:04 30 Apr 25
The experience I had with Seniors First and in particular Dean Hukin was first class.
Dean who I dealt with to attain my Reverse Mortgage was the most friendly courteous and knowledgeable person and he is an absolute credit to Seniors First.
His knowledge and excellent PR skills were wonderful and nothing was too much trouble and he was always available to answer any questions I asked if him.
I would certainly recommend Seniors First and in particular Dean Hukin to anyone considering a Reverse Mortgage.
Charles Dearling
06:57 29 Apr 25
When I started the Reverse Mortgage process it was with some trepidation. In the end I had a superb broker - Adam Oakley. He was extremely helpful, reassuring, and gave excellent advise, as well as putting up with my questions, and putting me at ease. Now its finalized, I'm very happy with the result. Would recommend Adam and Seniors First to anyone. Many thanks Adam for all the hard work.

Frequently asked questions

Can I lose my home with a Reverse Mortgage?

No. As long as you follow the loan terms (paying rates, insuring, maintaining the property), you can remain in your home for life.

What happens when I die or move into aged care?

The home is sold, the loan and interest are repaid, and remaining funds go to you or your estate.

Is a Reverse Mortgage safe in Australia?

Yes. All lenders must comply with the National Consumer Credit Protection Act (NCCP), including the No Negative Equity Guarantee.

What can I use the money for?

Anything – common uses include paying off debt, covering healthcare or aged care, renovating for accessibility, or supplementing income.

How much are the set up costs for a Reverse Mortgage?

Allow about $1,500 – $2,500 in total to establish your Reverse Mortgage loan. This amount includes the main costs such as the lender application fee, government charges, legal advice fees, and broker fees. This is only an estimate; you could pay more depending on the circumstances. If you are low on cash, you can usually elect to pay these Reverse Mortgage costs from the loan proceeds.

Key takeaway

A Reverse Mortgage can be a lifeline for Australians over 55 who are “asset-rich but cash-poor.” It provides flexible access to the wealth in your home while you continue living there.

But it’s not without risks: compounding interest, potential Age Pension pension impacts, and reduced inheritance are all important factors. That’s why it’s crucial to get help from a specialist Reverse Mortgage broker before making a decision.

>