What is a Reverse Mortgage?

Many retirees face a frustrating financial dilemma: they’re asset-rich but income-poor. Their home may be worth hundreds of thousands—or even millions—but their weekly spending is limited to what comes in through superannuation. Traditional mortgages don’t work in this scenario. They require income and regular repayments.

This is where reverse mortgages come in.

What Exactly Is a Reverse Mortgage?

A reverse mortgage allows homeowners aged 60+ to unlock the equity in their home without having to make repayments. Think of it as a regular mortgage in reverse: instead of paying it down over time, the loan balance increases.

You can choose to receive the money as a lump sum, in regular instalments (like an income top-up), or a combination of both. Interest is added to the loan and compounds over time. Importantly, you don’t need to make repayments while you live in the home—the loan is typically paid off when the property is sold or you move into long-term care.

How Lenders Control the Risk

Without limits, a reverse mortgage could quickly balloon. Imagine borrowing 80% of your property’s value—if left unpaid, that could climb to 87% within a year, just from interest.

To manage this, lenders set loan-to-value ratio (LVR) limits based on age. Here’s a general guide:

  • At age 60: borrow up to 20% of your home’s value

  • At age 70: borrow up to 30%

  • At age 80: borrow up to 40–50% (depending on lender)

These limits help ensure the homeowner retains equity in the property for longer and avoids negative equity (owing more than the home is worth).

Are Reverse Mortgages a Good Idea?

They can be—for the right situation.

Let’s say a 65-year-old retiree owns their home outright and receives the standard superannuation (~$22,000 a year). If their ideal income is closer to $30,000, a reverse mortgage could bridge that gap and make retirement more comfortable—enabling things like travel, heating the home properly, or paying medical bills. In this case, it’s not irresponsible spending—it’s simply converting home equity into usable funds.

But what about more “grey area” scenarios?

Say a 75-year-old wants to use $20,000 of equity to buy a car. Cars depreciate, and the loan accrues interest, so technically this is a double hit on net worth. But if that car brings independence and joy, is it still a poor decision?

That’s where responsible lending comes in.

Reverse Mortgage Lending Isn’t a Free-For-All

Reverse mortgage lenders do not allow borrowers to withdraw large sums on a whim. All applicants go through a rigorous process that includes:

  • Detailed financial discussions

  • Projections of how the loan will grow over time

  • Clear conversations around what the funds will be used for

  • Requiring independent legal advice before signing

These protections help ensure borrowers fully understand the product and make decisions that suit their long-term wellbeing.

A Mortgage Adviser’s Perspective

It’s understandable that some people feel uneasy about reverse mortgages. They go against the usual rules mortgage advisers follow: ensuring a loan is affordable and repaid over time.

But retirement is different. Sometimes, unlocking equity is the only viable way to fund a decent lifestyle, cover unexpected expenses, or simply enjoy the later years of life.

As long as the borrower understands the product, the risks, and the impact over time, reverse mortgages can be a legitimate and responsible option for retirees needing to tap into the wealth stored in their homes.


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