A reverse mortgage lets Australian homeowners aged 60+ borrow against their home's equity without making any repayments. Interest compounds and the loan is repaid when the home is sold or transferred. This calculator shows the actual numbers — equity released, debt growth, and the equity remaining at the end of the projection.
How a reverse mortgage works in Australia
A reverse mortgage is a regulated home loan product available to homeowners (typically aged 60 or older) that converts home equity into cash without requiring monthly repayments. The defining mechanic: interest accrues monthly and is added to the loan balance. Nothing is repaid until the home is sold, the borrower moves into long-term care permanently, or the borrower passes away.
There are three common drawdown structures:
- Lump sum — single drawdown at settlement. The whole amount accrues interest from day one.
- Regular income — monthly payments to the borrower, often used as a retirement income supplement. Interest accrues only on the amounts drawn so far, so debt grows more slowly than a lump sum.
- Line of credit — funds available on demand, drawn as needed. Interest accrues only on drawn amounts. Most flexible structure but typically with the highest interest rates.
The interest rate is variable on most products and runs 2–3% above standard variable home loan rates (because the lender carries the no-repayment risk and the No Negative Equity Guarantee).
Age-based LVR caps
Reverse mortgage providers use age-tiered loan-to-value caps. The older you are, the more you can borrow as a proportion of the home's value — because the lender expects a shorter compounding window. Indicative caps (vary by lender):
| Age | Maximum LVR | Maximum loan on $1m home |
|---|---|---|
| 60 | 15–20% | $150k–$200k |
| 65 | 20–25% | $200k–$250k |
| 70 | 25–30% | $250k–$300k |
| 75 | 30–35% | $300k–$350k |
| 80 | 35–45% | $350k–$450k |
| 85+ | 45–50% | $450k–$500k |
Couples are usually assessed on the youngest borrower's age. The home must typically be the principal place of residence; investment properties don't qualify.
How fast the debt grows
Compounding at the reverse mortgage rate is the central trade-off. Here's a $200,000 lump sum at 8.0% p.a., compounded monthly:
| Years | Loan balance | Rough property value at 4% growth ($1m start) |
|---|---|---|
| 0 | $200,000 | $1,000,000 |
| 5 | $298,000 | $1,217,000 |
| 10 | $445,000 | $1,480,000 |
| 15 | $663,000 | $1,801,000 |
| 20 | $989,000 | $2,191,000 |
Note how the loan can roughly catch up to the starting home value in ~20 years. Property growth above the loan rate keeps equity ahead; growth below the loan rate erodes it.
If the debt does eventually exceed the home's sale value, the No Negative Equity Guarantee (mandatory on all reverse mortgages issued from September 2012 onwards) caps the borrower's liability at the home's actual sale price. The lender absorbs any shortfall. This is a substantial consumer protection that didn't exist on pre-2012 products.
Lump sum vs regular income — debt growth comparison
The drawdown structure significantly affects how fast the debt grows. $200,000 of equity released, 8% rate, 15-year horizon:
- Lump sum at year 0: Debt grows to ~$663,000 (interest compounding on the full amount for 15 years).
- Regular income of $13,333/year for 15 years: Total drawn = $200,000. Debt at end ≈ $370,000. Interest compounding only on the cumulative amount drawn so far.
- Line of credit, drawn $50k at year 0 then $25k/year for 6 more years: Total drawn $200k. Debt at end ≈ $415,000.
If you don't need the full lump sum upfront, a drawdown structure dramatically reduces the compounding effect. The longer money sits in your bank account drawn but unused, the more it costs in compounded interest.
What it means for your beneficiaries
A reverse mortgage shrinks the equity that passes to your estate. Worked through:
- Home value at sale: What the property sells for after your eventual departure
- Reverse mortgage balance at sale: Original drawdowns plus all compounded interest
- Remaining equity: Difference goes to the estate
Run the numbers in the calculator above for your specific scenario. A typical pattern: reasonable property growth keeps the remaining equity positive in dollar terms, but it shrinks as a proportion of the home's value over time.
If preserving inheritance is a priority, alternatives to consider:
- Downsizing — sell the home, buy a smaller one, free equity directly without compounding debt. Australia's downsizer contribution lets people 55+ contribute up to $300k each to super from the sale proceeds.
- Centrelink Home Equity Access Scheme (formerly Pension Loans Scheme) — government-run reverse mortgage at much lower interest rates (~3.95% as of 2026), capped fortnightly drawdowns, available to most age pensioners and self-funded retirees. Generally a better-priced product than commercial reverse mortgages for income-style use.
- Family loan — adult children advance funds, secured against the property, redeemed from the eventual sale. Avoids compounding interest entirely; legal documentation important.
When a reverse mortgage makes sense
- You want to remain in the home and have no realistic intention of moving
- Your retirement income needs supplementation that other sources (super drawdown, age pension, downsizer contributions) can't cover
- Inheritance preservation is not a primary goal
- You've been advised by an independent financial planner and a solicitor
When it usually doesn't:
- You'd be using the funds for discretionary lifestyle (cruises, cars) — the compounding cost is high
- You may need to move into care or with family in the next 5–10 years (better to sell, downsize, or use Home Equity Access Scheme)
- The home is a meaningful inheritance to specific beneficiaries
- You haven't fully evaluated downsizing or the government scheme
Costs to factor in
Beyond the interest rate:
- Establishment fee: Typically $0–$1,500. Often capitalised onto the loan.
- Valuation fee: $300–$500.
- Legal advice: $300–$700, mandatory for most lenders.
- Annual fee: Some products charge $0; others up to $300/year.
- Discharge fees: $250–$500 when the loan is eventually paid out.
These all add to the loan balance and compound for the life of the loan.
For comparison against a standard mortgage drawdown, see the Mortgage Repayment Calculator. For modelling pure compounding scenarios at different rates, the Compound Interest Calculator.
Frequently asked questions
How much can I borrow with a reverse mortgage?
Australian reverse mortgage providers use age-based LVR caps. Typical maximums: 15–20% of home value at age 60; 25–30% at age 70; 35–45% at age 80; up to 50% by age 90. Industry guidelines (the Senior Australians Equity Release Association of Lenders, SEQUAL, now part of FBAA) cap most products at these LVRs. Some lenders are more conservative.
Do I have to make any repayments?
No — that's the defining feature. Interest accrues monthly and is added to the loan balance. The full debt is repaid when you sell the home, move into long-term care, or pass away. You can voluntarily repay at any time without penalty on most products, which slows the debt growth.
How fast does the debt grow?
It compounds at the loan's interest rate. At 8% p.a. (a typical reverse mortgage rate), a $200,000 starting debt becomes ~$432,000 in 10 years and ~$932,000 in 20 years. Property growth typically lags this rate over long horizons in many areas, so the equity remaining for beneficiaries shrinks unless capital growth is strong.
What is the No Negative Equity Guarantee?
Australian reverse mortgages issued from September 2012 onwards must include a statutory No Negative Equity Guarantee (NNEG) under the National Consumer Credit Protection Act. The borrower (or their estate) can never owe more than the home's sale value — even if compounded interest exceeds the property value. The lender absorbs any shortfall. This is a significant consumer protection that wasn't present in early-2000s reverse mortgages.
Will it affect my Age Pension?
The funds drawn from a reverse mortgage are generally not counted as income for Centrelink purposes (they're a loan, not income). However, what you do with the funds matters: cash sitting in your bank account counts toward the assets test once it exceeds a small threshold. If you draw a lump sum and leave it in a high-interest savings account, the balance can affect your pension. Spending or investing the funds (e.g., into renovations) avoids this. Always speak to a Centrelink Financial Information Service officer before taking a reverse mortgage.
Can I lose my home with a reverse mortgage?
Generally no — the contract specifies that you can stay in the home as long as it remains your principal residence. The loan is only called in when you sell, move into long-term care, or pass away. You're still required to maintain the property, pay rates, and keep insurance current; failing to do so can be a default trigger. The No Negative Equity Guarantee means even if the debt eventually exceeds the home's value, you (or your estate) won't owe the difference.
How does this affect my children's inheritance?
Significantly. The accumulated debt is repaid from the sale of the home, so the equity left for beneficiaries shrinks over time. A $1m home with a $200k reverse mortgage starts with $800k of equity for the estate. If the mortgage compounds for 15 years at 8% (debt becomes ~$634k) and the property grows at 4% (value becomes ~$1.8m), the remaining equity is ~$1.17m — bigger in dollars than the starting equity but proportionally smaller relative to the property value.
Should I get independent legal advice?
Yes — Australian lenders are required to recommend independent legal advice, and most require a written acknowledgement that you've sought it before settlement. The compounding debt structure and impact on estate planning warrant a thorough review with a solicitor (and ideally a financial planner who specialises in retirement income). The fee for legal advice (~$300–$700) is small relative to the contract size.
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Last updated: 30 April 2026