Reverse Mortgage Pros and Cons: What to Weigh Up Before You Borrow

Reverse mortgage pros and cons come down to one trade. You can use your home's value without selling it or making repayments while you live there, and in return the debt grows and leaves you less equity later on. Whether that's worth it depends on what the money is for, how long you plan to stay and what you want to leave behind.

Most people who ask us are older owners who want to stay in their home, and some are in their 70s, still owe around $200,000 and are struggling to keep up the repayments.

How does a reverse mortgage work?

A reverse mortgage is a loan secured against your home. Moneysmart says most lenders won't offer one to anyone under 60. You don't have to make repayments while you live there. The interest is added to the loan instead, and the whole balance is repaid when you sell, move out permanently or your estate sells the home.

The pros of a reverse mortgage

• You stay in your home. You can get at some of its value without selling up.
• No repayments are required while you live there. That matters if your income is modest. You can usually make voluntary repayments if you want to slow the balance down.
• You choose how the money arrives. A lump sum, a regular income, a line of credit or a mix. Drawing only what you need keeps the interest lower than taking it all on day one.
• You can't owe more than the home is worth. Reverse mortgages taken out since 18 September 2012 have negative equity protection under the National Credit Code. When the home is sold, the lender has to accept the sale proceeds as full settlement. There are limited exceptions, so ask your lawyer to walk you through them.
• You may be able to protect part of your equity, so some of it is still there for aged care.
• The money generally isn't counted as income for Centrelink. See the pension point below for the catch.

The cons of a reverse mortgage

• The debt can grow quickly. Interest compounds, so you pay interest on your interest. In Moneysmart's example, a couple with a $500,000 home borrow $125,000 at 7%. If the home grows 3% a year, after 15 years they owe $358,967 and own 54% of it.
• It costs more than a standard home loan. Rates are usually higher, and there can be fees on top.
• There's less to leave behind. Whatever the loan takes comes out of what your family receives.
• You may have less for aged care. If you later need a care deposit, a bigger loan leaves less equity to fund it.
• It can affect your pension. Money you've borrowed and left unspent can count as an asset. Check before you decide with Services Australia's free Financial Information Service.
• Someone living with you may have to move. If they aren't on the loan, check what happens to them when you move out or pass away.
• Investing the money is risky. Moneysmart warns against it, because your home is what's on the line.

Use a reverse mortgage calculator before you decide

ASIC's free reverse mortgage calculator shows how a loan could eat into your equity over time. Change the amount borrowed, the interest rate and the growth rate to see how much difference each one makes. The couple in Moneysmart's example decide to get advice and look at borrowing less.

You'll see projections either way. Before a lender or broker helps you apply, the law requires them to take you through projections of your equity using that calculator.

Compare it with the alternatives

Weigh a reverse mortgage against your other options. Moneysmart suggests looking at Government benefits, a No Interest Loan for smaller amounts, and downsizing.

The Government's Home Equity Access Scheme is the obvious comparison if you're Age Pension age. Services Australia lists its rate at 3.95% a year, which is lower than reverse mortgages generally charge, but your combined pension and loan payments are capped each fortnight. If you're still repaying a standard loan and can manage it, refinancing might be the simpler place to start.

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Talk it through with a local broker

These are big decisions, and it helps to have your family in the room. Moneysmart and Services Australia both recommend independent legal or financial advice before you sign.

We're based on Park Street in Glenbrook. If you'd like to talk to a reverse mortgage broker about how this applies to your home, bring the family along.

Call (02) 4744 2054 or get in touch.

This article is general information only and doesn't take into account your objectives, financial situation or needs. Consider whether it's appropriate for you and get independent legal or financial advice before acting, including how it may affect your pension. Lending criteria, fees and charges apply. Home Equity Access Scheme details are from Services Australia and current as at 10 November 2026. Four Red Hats Pty Ltd (t/a Lend Local Co) ACN 666 330 972 is authorised under LMG Broker Services Pty Ltd, Australian Credit Licence 517192.