Compare Reverse Mortgages

Find out how a reverse mortgages work and why it might benefit you

To help you make a choice about reverse mortgages, here are some options you can consider. These are some examples of what’s available in the marketplace from selected providers.

Reverse Mortgage

For homeowners aged 70 or over

Flexible uses for money

  • Lump sum payment, regular payments or a flexible cash draw facility
  • Choose a protected equity option in addition to the no negative equity guarantee
  • Borrow from 18% LVR at age 70, increasing by 1% for each year of age
  • Loan amount ranges from $20,000 to $1,000,000
  • No regular repayments are required during the course of the loan
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Aged Care Loan

For homeowners aged 65 or over

Can be used for any worthwhile purpose

  • Lump sum payment, regular payments or a flexible cash draw facility
  • No regular repayments are required during the course of the loan
  • Borrow from 25% LVR at age 65
  • Loan amount ranges from $20,000 to $1,000,000
  • Borrow up to 50% LVR for a 3 year term and up to 35% for a 5 year term
  • Property will be revalued if loan term is extended
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Equity Unlock Loan for Seniors (Reverse Mortgage)

For homeowners aged 65 and over

Flexible uses for money

  • Lump sum payment or regular income stream
  • No negative equity guarantee
  • Borrow up to 40% LVR to a maximum of $425,000 depending on your age
  • Repayments are not required while you are living in the home
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Seniors Equity Release

Reverse Mortgage Home Loan

A great way to access the equity that's in your house

  • For homeowners aged 65 or over
  • Borrow up to 25% of the value of your home (maximum loan size of $250,000)
  • Take the money as a lump sum or make withdrawals as you need
  • Make no repayments for the life of the loan
  • No-Negative-Equity Guarantee included
  • Your loan is typically repaid when your house is sold or your estate is settled
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Easy Living Home Loan

Reverse Mortgage

A reverse mortgage option for over 65's in the Perth area with a competitive variable interest rate

  • Variable interest rates may lead to lower loan repayments.
  • Choose to make no repayments and settle your loan when your property is sold.
  • You may make repayments by making interest only, lump sum or regular repayments, the choice is yours.
  • Redraw facility means your funds may be accessed at any time you need them.
  • Obtain a loan that suits your needs starting at $10,000 up to 35% of the property value.
  • Available to over 65's in the Perth area
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Reverse Mortgage

Variable Rate

Specialist reverse mortgage

  • Remain the owner of your home, benefiting from any increases in home value.
  • Take your loan as a lump sum, cash reserve facility, regular advance, or combination.
  • No monthly repayments required; loan balance is paid when you move out.
  • You can use your money for any worthwhile purpose
  • Heartland’s loans have a ‘No Negative Equity Guarantee’
  • Variable interest rates mean that there will be changes to what you are charged over time.
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What is a reverse mortgage?

As the name implies, a reverse mortgage is the opposite of a traditional mortgage.

With a traditional mortgage, the borrower gets a loan so they can buy a home. With a reverse mortgage, the borrower ‘pulls out’ money from a home they already own.

Interest rates are usually higher for reverse mortgages than traditional mortgages.

How do reverse mortgages work?

The lender will agree an amount you can lend based on your age and your property value. You then don’t have to make any repayments until the property is sold (often after you die) or another means of repayment exists.

Interest is added to the loan every month, so it will steadily grow until the property is sold, when the whole amount will need to be repaid.

What happens if I end up borrowing more money than my house is worth?

This cannot happen. In Australia, lenders have to give you a ‘no negative equity guarantee’, which means that whatever happens to interest rates or the value of your property, neither you or your estate can owe more than the value of the property.

Also, lenders can’t force reverse mortgage borrowers out of their home or close on their loan, which is an important protection for Australians taking out a reverse mortgage.

It is unlikely that this would happen anyway as  banks strictly limit how much money a borrower can draw out of the mortgage, based on their age and the value of their home. In the unlikely event that the debt exceeds the sale proceeds, the bank will be forced to wear the loss.

Traditional mortgage Reverse mortgage
Typical borrower Younger Australian Older Australian
Interest rate Lower Higher
Loan balance Decreases over time Increases over time
Owner’s equity Increases over time Decreases over time
Loan closes After 30 years When the borrower dies or sells

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Who can take out a reverse mortgage?

You can take out a reverse mortgage if you’re an older Australian and you own your own home.

Different banks adopt different policies, but as a general rule you won’t be able to take out a reverse mortgage until you’re at least 60.

The older you are, the more you can borrow. At 60, you might be able to borrow a sum equivalent to about 15 per cent of the value of your home. Generally, your borrowing capacity rises by 1 percentage point each year. For example, a bank might set the following limits:

Age Borrowing capacity
60 15%
65 20%
70 25%
75 30%
80 35%
85 40%
90 45%
95 50%


Why do people take out reverse mortgages?

Older Australians use reverse mortgages to finance a range of things, including:

  • Retirement
  • Aged care
  • Home maintenance
  • Home renovations
  • Holidays
  • Cars
  • Day-to-day living

Reverse mortgages might suit some older Australians who are asset rich but cash poor - that is, those are wealthy on paper (because their home is worth a lot of money), but who struggle to pay the bills (because they have to live on a small pension). A reverse mortgage might allow them to translate their paper wealth into real money, by cashing in some of their equity. 

They can also suit Australians whose superannuation is performing well, so they decide to draw it down more slowly.

Pros
  • Turn your paper wealth into real cash
  • Don’t have to pay back debt while you’re alive
  • Can’t be evicted from your home
Cons
  • You have to set it up carefully or it can affect your pension
  • You might have less money to pass on to your children
  • Other residents might be evicted after you die

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How do you take out a reverse mortgage?

There are three ways you can take out a reverse mortgage:

  • Going through a home loan comparison site, like RateCity.com.au
  • Visiting a lender directly
  • Using a mortgage broker

Whichever option you choose, you will be asked to do three things:

  • Confirm your identity
  • Prove that you own the home you want to borrow against
  • Provide details of your assets and liabilities

The lender might also require you to get independent legal advice and/or independent financial advice.

Depending on the lender, you might be asked to choose from one of four options for collecting the loan:

  1. A lump sum
  2. Regular payments (such as an annuity)
  3. A line of credit
  4. A combination of the above

Who offers reverse mortgages?

While Australia has more than 150 lenders that offer traditional home loans, fewer than 10 offer reverse mortgages.

Unfortunately, this means your options are limited. But on the positive side, it makes it easier to research your options and choose the best reverse mortgage for your situation.

How do you compare reverse mortgages?

Here are some things to consider when comparing reverse mortgages:

  • Minimum age - some banks will give reverse mortgages to people as young as 60; others won’t lend to Australians under 70.
  • Borrowing amount - some banks might allow you to borrow, say, 20 per cent of the value of your home when you’re 70, while others might limit your borrowing to 15 per cent. Find out how your age affects your borrowing capacity, and how it changes over time.
  • Payment method - depending on the reverse mortgage provider, you might be able to receive your money in a lump sum, as a recurring payment, via a line of credit or through some combination of the above.
  • Interest rates - all things being equal, a reverse mortgage with a lower interest rate will be better than a reverse mortgage with a higher interest rate.
  • Fees - reverse mortgage providers might charge you a range of fees, including upfront fees, ongoing fees, discharge fees and redraw fees. Pay close attention to these fees, because they could add up to tens of thousands of dollars if compounded over a long loan.
  • Features - different reverse mortgages offer different sweeteners. These might include a cooling-off period, a redraw facility, the ability to change payment method and the option of protecting a certain percentage of your equity for your children.

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Reverse mortgage case study

When Mrs Smith turns 80, she decides to take out a reverse mortgage on her $1 million home. It comes with a $495 establishment fee but $0 in ongoing fees. Over the next 10 years, she draws out $2,500 per month, at an interest rate of 6.25 per cent, but declines to make repayments.

By the time Mrs Smith dies, aged 90, she has accumulated about $416,000 of debt. At the same time, the value of her home has increased to about $1.3 million. The bank sells her home for that very price, thereby recouping its money. The rest of the sale proceeds (about $900,000) is retained by Mrs Smith’s estate.  

For more information, see the screenshot below, which was taken from the ASIC reverse mortgage calculator.

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What are the pros and cons of reverse mortgages?

The main advantage of a reverse mortgage is that you can turn your paper wealth into real cash. Cashing in your equity can free up money that you can then use to fund your aged care, maintain your home, pay for day-to-day living or whatever else takes your fancy.

Another advantage of a reverse mortgage is that the bank can’t kick you out of your home while you’re alive - even if it was worried about the size of the debt. That’s one reason why banks place strict limits on how much equity younger Australians can draw out of their homes (while allowing more leeway to older Australians).

A third big plus with reverse mortgages is that you don’t have to pay back any of the debt - at least while you’re alive. Instead, you can leave that problem to your estate. In this scenario, after you died, your estate would sell your home, use the sale proceeds to pay off the loan and then distribute whatever remained. And if the debt turned out to be larger than the sale proceeds, this loss would have to be borne by the bank, rather than the estate. This is called the ‘no negative equity guarantee’.

But reverse mortgages also have cons. For example, while reverse mortgage holders can’t be evicted from their homes, the bank might be able to evict any other residents (such as relatives) when the reverse mortgage holder dies.

Another problem is that your debt can greatly compound - the longer you live after taking out the reverse mortgage, and the fewer repayments you make, the larger the outstanding loan will become. This will reduce the amount of money you can leave to your heirs.

One potentially significant disadvantage is that a reverse mortgage may affect your pension eligibility. In other words, if you take out a reverse mortgage, you might find that you are no longer able to claim the pension.

How to protect your pension

It's advisable to check with Centrelink before taking out a reverse mortgage. That way, you can be clear on how a reverse mortgage might affect your pension eligibility, and what steps you need to take to protect it.

What are the risks of reverse mortgages?

Reverse mortgages come with three main risks:

  1. Becoming ineligible for the pension
  2. Running out of money by going too early
  3. Running out of money by going too hard

One big risk with taking out a reverse mortgage is that it could make you ineligible for the pension. That’s why you should strongly consider taking out independent financial advice before going ahead with the loan. You should also strongly consider talking to Centrelink. (If the reverse mortgage is structured correctly, you should be able to protect your pension.)

Another risk with a reverse mortgage is ‘going too early’. Usually, you only get one chance to pull out equity from your home, so if you take out a reverse mortgage while you’re still relatively young and healthy, you might find there is no equity left to cash in once you’re old and sick and really need the money.

Just as there’s a risk of going too early, there’s also a risk of going too hard. Someone who spends money on non-essentials like holidays or presents might find they don’t have enough money in the future when they get hit by big medical bills.

How to compare reverse mortgages

Here are six ways to compare reverse mortgage loans:

  1. Minimum age
  2. Borrowing method
  3. Payment method
  4. Interest rates
  5. Fees
  6. Features

^Words such as "top", "best", "cheapest" or "lowest" are not a recommendation or rating of products. This page compares a range of products from selected providers and not all products or providers are included in the comparison. There is no such thing as a 'one- size-fits-all' financial product. The best loan, credit card, superannuation account or bank account for you might not be the best choice for someone else. Before selecting any financial product you should read the fine print carefully, including the product disclosure statement, fact sheet or terms and conditions document and obtain professional financial advice on whether a product is right for you and your finances.

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