Reverse mortgages: What are they?
If you’re an older Australian who owns their own home, you might have heard about using a reverse mortgage as a way to borrow money using the equity you’ve built up in your home.
Despite the name, reverse mortgages aren’t quite the opposite of regular home loans - there’s a bit more to them. So to help you get to grips with the concept, this guide will help explain what reverse mortgages actually are, how they work, as well as some of the benefits and drawbacks involved.
What is a reverse mortgage?
A reverse mortgage is a loan, using property as security, which allows older homeowners to make use of the equity in their homes in exchange for a lump sum, ongoing payment or line of credit.
According to regulator ASIC , reverse mortgages have become more popular over the last decade, with loan books from banks having doubled from $1.3 billion to $2.5 billion between 2008 and 2017.
This is perhaps unsurprising when you consider the rise in property values over the years and the considerable equity that has built up as a result. Equity has become a valuable asset for many homeowners, but unlocking it without selling the actual property isn’t the easiest task.
That’s why reverse mortgages could be a useful option for older homeowners and retirees who want access to a readily usable source of funds, but don’t want to sell up or entirely relinquish ownership of their homes.
As outlined above, a reverse mortgage is essentially a form of loan that can be taken out by homeowners (typically aged 60 or older) using their own homes as security. These funds can then be used for a whole range of purposes: from day-to-day expenses to larger purchases.
How does a reverse mortgage work?
Unlike a traditional home loan where you’re required to make ongoing repayments, a reverse mortgage allows borrowers to continue living in their own homes without making any repayments. Instead, the outstanding balance will be due either when the property is sold, vacated or when the borrower passes away.
Of course, there are costs involved:
- Interest: Reverse mortgage rates are typically higher than home loan interest rates (around 2% higher according to ASIC). It’s also worth noting that because there are no repayments, interest will compound at a faster rate than a typical loan - especially for lump sum payments.
- Fees: Depending on the lender the type and size of fees will vary, but establishment fees, ongoing service fees and valuation fees are all common.
What about the amount that you’ll be able to borrow? Each lender will have a minimum and maximum threshold, plus a number of factors that will go into determining your borrowing ability including your age, the value of the property, the way the funds are received (lump sum, regular payment etc.) and the period over which the loan is taken.
To give you a better idea of your borrowing ability and the impact a loan will have on your equity over time, check out the ASIC Moneysmart reverse mortgage calculator .
What are the benefits and drawbacks?
Like any loan, a reverse mortgage isn't going to suit everyone. Because of the amount of money involved, and the fact that borrowers will be providing their own homes as security, it’s worth thinking carefully before taking one out. Here are some points to weigh up:
Benefits
- You’ll still own and be able to live in your own home
- Most lenders give the flexibility of choice between borrowing a lump sum, opting for regular instalments or even taking it in the form of a line of credit
- You won’t need to worry about making any ongoing repayments
Drawbacks
- Reverse mortgages aren’t available to everyone - you’ll obviously need to own your own home and be over the age of 60 or 65 depending on the lender
- If you’re not making regular repayments, the interest on the outstanding balance plus any fees involved may compound significantly over time
- As your outstanding balance grows, your equity will decrease over time
Reverse mortgages FAQs
Are there age restrictions for reverse mortgages?
Yes. Generally you’ll have to be over the age of 60 to apply for a reverse mortgage, though some lenders have a higher age requirement of 65 and above.
What about negative equity?
Negative equity would take place in the event that the value of your home (or the property being used to secure the reverse mortgage) fell below the value of the outstanding balance. However, an amendment to the National Credit Code in 2012 means that lenders can no longer allow borrowers to go into negative equity as a result of taking out a reverse mortgage.
Will a reverse mortgage affect my pension?
There’s no simple answer here, but in short, a reverse mortgage could impact your pension. Ultimately it will depend on how much you borrow, what you use the money for and how both of these factors will affect Centrelink’s asset or income tests.
Are there other options available?
If a reverse mortgage doesn’t sound like the right fit, there could be a number of other borrowing options available to you including the pension loan scheme, a home reversion scheme or even a personal loan.
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Optimum Fixed Rate Home Loan
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Basic Home Loan
- Fixed
- Owner Occupier
- Principal & Interest
- LVR<70%
- Interest rate
-
5.69
%
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Fixed 2 years
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6.08
%
p.a.
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-
$2,899
No upfront or ongoing fees. Free extra repayments and redraw facility. Option to earn Qantas points. Min 30% deposit required. Borrow up to $10,000,000.
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1 year - 5.85% p.a. (6.14% p.a.*)
2 years - 5.69% p.a. (6.08% p.a.*)
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-
6.14% p.a.
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$10,000,000
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Fixed
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Principal & Interest
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Owner Occupier
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Monthly
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yes - up to $10,000 p.a.
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-
yes - free
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no
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Offset Home Loan
- Fixed
- Owner Occupier
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- LVR <70%
- Interest rate
-
5.69
%
p.a.
Fixed 2 years
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6.30
%
p.a.
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-
$2,899
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-
1 year - 5.85% p.a. (6.36% p.a.*)
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Fixed
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Fixed Home Loan
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-
5.69
%
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Fixed 2 years
- Comparison rate
-
6.34
%
p.a.
- Initial monthly repayment
-
$2,899
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-
1 year - 6.19% p.a. (6.45% p.a.*)
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-
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95.00%
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$10,000
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Fixed
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yes - free up to 1 year in advance
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-
yes - free
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-
$500.00
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no
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yes
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Monthly fee only applies to fixed period of loan.
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-
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-
$4,000 cashback for loans $750,000 and above with a maximum LVR of 80%, settled within 90 days of application for refinancers or 180 for purchase loans. $3,000 for loans between $500k and $749k, $2,000 for loans between $250k and $499k.
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Flex Home Loan
- Fixed
- Owner Occupier
- Principal & Interest
- LVR <60%
- Interest rate
-
5.79
%
p.a.
Fixed 2 years
- Comparison rate
-
6.27
%
p.a.
- Initial monthly repayment
-
$2,931
Competitive Fixed rate. Multiple offset accounts available. Borrowers can also make extra repayments. Redraw facility available. Simple online application process. 40% deposit required.
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-
1 year - 5.99% p.a. (6.32% p.a.*)
2 years - 5.79% p.a. (6.27% p.a.*)
3 years - 5.79% p.a. (6.25% p.a.*)
5 years - 5.79% p.a. (6.20% p.a.*)
- Fixed loan revert rate
-
6.09% p.a.
- Upfront fees
-
$250
- Ongoing fees
-
$250.00 yearly
- Discharge Fee
-
$300.00
- Package
-
-
- Maximum loan to value ratio
-
60.00%
- minimum borrowing amount
-
-
- maximum borrowing amount
-
-
- type of mortgage
-
Fixed
- Repayment types
-
Principal & Interest
- Availability
-
Owner Occupier
- Repayment options
-
Weekly, Fortnightly, Monthly
- Extra repayments
-
yes - free
- Redraw facility
-
yes - free
- Minimum redraw amount
-
-
- Offset account
-
yes
- Split account
-
yes
- Other restrictions
-
If the valuation is over $360, ubank will cover the first $360. Home loans with a term of greater than 30 years will only be available for owner-occupied P&I 80% LVR purchase applications.
- Other benefits
-
-
- Special Offers
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-
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Unloan Variable
- Owner Occupier
- LVR <80%
- Interest rate
-
5.99
%
p.a.
Variable
- Comparison rate
-
5.90
%
p.a.
- Initial monthly repayment
-
$2,995
Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.
- interest rate
-
5.99% p.a. (5.90% p.a.*)
- Fixed loan revert rate
-
n/a
- Upfront fees
-
$0
- Ongoing fees
-
$0.00
- Discharge Fee
-
$0.00
- Package
-
-
- Maximum loan to value ratio
-
80.00%
- minimum borrowing amount
-
$10,000
- maximum borrowing amount
-
$10,000,000
- type of mortgage
-
Variable
- Repayment types
-
Principal & Interest
- Availability
-
Owner Occupier
- Repayment options
-
Weekly, Fortnightly, Monthly
- Extra repayments
-
yes - free
- Redraw facility
-
yes - free
- Minimum redraw amount
-
-
- Offset account
-
no
- Split account
-
no
- Other restrictions
-
-
- Other benefits
-
Rate discounted by 0.01% p.a. every year up to a maximum discount of 0.30% p.a..
- Special Offers
-
-
Read reviews and learn more about Unloan home loans
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Variable Home Loan 90
- Principal and Interest
- LVR <90%
- Interest rate
-
6.04
%
p.a.
Variable
- Comparison rate
-
6.06
%
p.a.
- Initial monthly repayment
-
$3,011
Affordable home loan rate for buyers or refinancers. No monthly or ongoing fees. Option to add an offset for 0.10%. Access to savings with unlimited redraws available. Minimum 10% deposit required.
- interest rate
-
6.04% p.a. (6.06% p.a.*)
- Fixed loan revert rate
-
n/a
- Upfront fees
-
$530
- Ongoing fees
-
$0.00
- Discharge Fee
-
$0.00
- Package
-
-
- Maximum loan to value ratio
-
90.00%
- minimum borrowing amount
-
$50,000
- maximum borrowing amount
-
$2,000,000
- type of mortgage
-
Variable
- Repayment types
-
Principal & Interest
- Availability
-
Owner Occupier
- Repayment options
-
Weekly, Fortnightly, Monthly
- Extra repayments
-
yes - free
- Redraw facility
-
yes - free
- Minimum redraw amount
-
$0.00
- Offset account
-
yes
- Split account
-
yes
- Other restrictions
-
Offset sub-account available for additional +0.10%. $300 discharge fee and $250 discharge documentation fee applicable if loan doesnt go to full term.
- Other benefits
-
-
- Special Offers
-
-
Read reviews and learn more about loans.com.au home loans
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Budget Home Loan
- LVR <80%
- Owner Occupier
- Principal & Interest
- Interest rate
-
6.04
%
p.a.
Variable
- Comparison rate
-
6.07
%
p.a.
- Initial monthly repayment
-
$3,011
Enjoy a discounted variable home loan from IMB. Get up to $4,000 cashback (T&Cs apply). Life-of-loan discount off IMB’s standard variable interest rate. Unrestricted additional repayments. Free Internet and Mobile Banking redraws (T&Cs apply). No monthly fees to pay. Up to a 30 year loan term. Split loan available. No offset account.
- interest rate
-
6.04% p.a. (6.07% p.a.*)
- Fixed loan revert rate
-
n/a
- Upfront fees
-
$350
- Ongoing fees
-
$0.00
- Discharge Fee
-
$350.00
- Package
-
-
- Maximum loan to value ratio
-
80.00%
- minimum borrowing amount
-
$10,000
- maximum borrowing amount
-
$5,000,000
- type of mortgage
-
Variable
- Repayment types
-
Principal & Interest
- Availability
-
Owner Occupier
- Repayment options
-
Weekly, Fortnightly, Monthly
- Extra repayments
-
yes - free
- Redraw facility
-
yes - free
- Minimum redraw amount
-
$500.00
- Offset account
-
no
- Split account
-
yes
- Other restrictions
-
-
- Other benefits
-
The $449 application fee is waived for <80% LVR Owner Occupier Principal and Interest loans.
- Special Offers
-
$4,000 cashback for loans $750,000 and above with a maximum LVR of 80%, settled within 90 days of application for refinancers or 180 for purchase loans. $3,000 for loans between $500k and $749k, $2,000 for loans between $250k and $499k.
Read reviews and learn more about IMB Bank home loans
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Neat Home Loan
- Owner Occupier
- Principal & Interest
- LVR <60%
- Interest rate
-
6.09
%
p.a.
Variable
- Comparison rate
-
6.11
%
p.a.
- Initial monthly repayment
-
$3,027
Competitively-priced variable rate loan. Ideal for owner occupiers and investors. No service fees to pay. Make free extra repayments and redraws. Flexible repayment schedule available.
- interest rate
-
6.09% p.a. (6.11% p.a.*)
- Fixed loan revert rate
-
n/a
- Upfront fees
-
$250
- Ongoing fees
-
$0.00
- Discharge Fee
-
$300.00
- Package
-
-
- Maximum loan to value ratio
-
60.00%
- minimum borrowing amount
-
$80,000
- maximum borrowing amount
-
$5,000,000
- type of mortgage
-
Variable
- Repayment types
-
Principal & Interest
- Availability
-
Owner Occupier
- Repayment options
-
Weekly, Fortnightly, Monthly
- Extra repayments
-
yes - free
- Redraw facility
-
yes - free
- Minimum redraw amount
-
-
- Offset account
-
no
- Split account
-
no
- Other restrictions
-
If the valuation is over $360, ubank will cover the first $360. Home loans with a term of greater than 30 years will only be available for owner-occupied P&I 80% LVR purchase applications.
- Other benefits
-
-
- Special Offers
-
-
Read reviews and learn more about ubank home loans
Go to site -
Flex Home Loan
- Owner Occupier
- Principal & Interest
- LVR <60%
- Interest rate
-
6.09
%
p.a.
Variable
- Comparison rate
-
6.33
%
p.a.
- Initial monthly repayment
-
$3,027
Competitive variable rate. Multiple offset accounts available. Borrowers can also make extra repayments. Redraw facility available. Simple online application process. 40% deposit required.
- interest rate
-
6.09% p.a. (6.33% p.a.*)
- Fixed loan revert rate
-
n/a
- Upfront fees
-
$250
- Ongoing fees
-
$250.00 yearly
- Discharge Fee
-
$300.00
- Package
-
-
- Maximum loan to value ratio
-
60.00%
- minimum borrowing amount
-
-
- maximum borrowing amount
-
-
- type of mortgage
-
Variable
- Repayment types
-
Principal & Interest
- Availability
-
Owner Occupier
- Repayment options
-
Weekly, Fortnightly, Monthly
- Extra repayments
-
yes - free
- Redraw facility
-
yes - free
- Minimum redraw amount
-
-
- Offset account
-
yes
- Split account
-
yes
- Other restrictions
-
If the valuation is over $360, ubank will cover the first $360. Home loans with a term of greater than 30 years will only be available for owner-occupied P&I 80% LVR purchase applications.
- Other benefits
-
-
- Special Offers
-
-
Read reviews and learn more about ubank home loans
Go to site -
Basic Home Loan
- Owner Occupier
- LVR<60%
- Principal & Interest
- Interest rate
-
6.14
%
p.a.
Variable
- Comparison rate
-
6.16
%
p.a.
- Initial monthly repayment
-
$3,043
Enjoy a low rate home loan with $0 application fee and $0 ongoing fees. Flexibility to split your loan and set different repayment types. Fee free redraw from your loan using online banking. Flexible ways to repay. 40% Deposit required.
- interest rate
-
6.14% p.a. (6.16% p.a.*)
- Fixed loan revert rate
-
n/a
- Upfront fees
-
$350
- Ongoing fees
-
$0.00
- Discharge Fee
-
$400.00
- Package
-
-
- Maximum loan to value ratio
-
60.00%
- minimum borrowing amount
-
$150,000
- maximum borrowing amount
-
$10,000,000
- type of mortgage
-
Variable
- Repayment types
-
Principal & Interest
- Availability
-
Owner Occupier
- Repayment options
-
Monthly
- Extra repayments
-
yes - free
- Redraw facility
-
yes - free
- Minimum redraw amount
-
-
- Offset account
-
no
- Split account
-
yes
- Other restrictions
-
-
- Other benefits
-
-
- Special Offers
-
-
Read reviews and learn more about Macquarie home loans
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Offset Home Loan
- Owner Occupier
- LVR<60%
- Principal & Interest
- Interest rate
-
6.14
%
p.a.
Variable
- Comparison rate
-
6.39
%
p.a.
- Initial monthly repayment
-
$3,043
Ability to open up to 10 offset accounts per loan account. Fast online application. Linked Debit Mastercard® with fee-free access at ATMs across Australia. Package a credit card with your home loan and the annual card fee will be waived (T&Cs apply). 40% deposit required.
- interest rate
-
6.14% p.a. (6.39% p.a.*)
- Fixed loan revert rate
-
n/a
- Upfront fees
-
$350
- Ongoing fees
-
$248.00 yearly
- Discharge Fee
-
$400.00
- Package
-
Package
- Maximum loan to value ratio
-
60.00%
- minimum borrowing amount
-
$150,000
- maximum borrowing amount
-
$10,000,000
- type of mortgage
-
Variable
- Repayment types
-
Principal & Interest
- Availability
-
Owner Occupier
- Repayment options
-
Monthly
- Extra repayments
-
yes - free
- Redraw facility
-
yes - free
- Minimum redraw amount
-
-
- Offset account
-
yes
- Split account
-
yes
- Other restrictions
-
-
- Other benefits
-
Waived annual fee for credit card added to the home loan.
- Special Offers
-
-
Read reviews and learn more about Macquarie home loans
Go to site
Your selected home loans
* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.
** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.
^See information about the Mozo Experts Choice Home Loan Awards
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