What Is a Reverse Mortgage? A Simple, Plain-English Explanation
A reverse mortgage is one of those financial products that gets talked about a lot — and misunderstood even more.
If you’ve heard the term and wondered how it works, who it’s for, or why people have strong opinions about it, you’re not alone. Let’s break it down in a clear, no-jargon way.
What Is a Reverse Mortgage?
A reverse mortgage is a type of home loan designed for older homeowners.
Instead of making repayments to a bank like a normal mortgage, a reverse mortgage allows you to borrow money against the value of your home and receive it as:
- A lump sum
- Regular payments
- A line of credit
- Or a combination of these
The key difference is that you usually don’t make regular repayments while you live in the home.
How Does a Reverse Mortgage Actually Work?
With a reverse mortgage:
- You must be above a certain age (usually 60+)
- You own your home (or have a small mortgage remaining)
- The loan is secured against your property
Interest is added to the loan balance over time, meaning the amount you owe increases rather than decreases.
The loan is typically repaid when:
- You sell the property
- You move out permanently
- You pass away
Do You Still Own Your Home?
Yes.
You remain the owner of your home and stay on the title. You’re still responsible for things like:
- Property maintenance
- Council rates
- Insurance
Who Is a Reverse Mortgage Usually For?
Reverse mortgages are generally designed for retirees or older homeowners who:
- Want access to cash without selling their home
- Have limited income but significant home equity
- Want to supplement retirement income
They are not usually suitable for first home buyers or people still building their wealth.
How Much Can You Borrow?
The amount you can borrow depends mainly on your age and the value of your home.
Generally:
- The older you are, the more you can borrow
- You can usually access a percentage of your home’s value
What Happens to the Debt Over Time?
Because interest is added to the loan balance, the amount owing grows over time.
This is why reverse mortgages can significantly reduce the equity left in the property if held for a long period.
Is There a Risk of Owing More Than the Home Is Worth?
In Australia, reverse mortgages include a no negative equity guarantee.
This means you (or your estate) will never owe more than the value of the home when it’s sold, even if the loan balance has grown.
What Are the Pros of a Reverse Mortgage?
- Access cash without selling your home
- No regular loan repayments required
- Can improve cash flow in retirement
What Are the Cons to Be Aware Of?
- Interest compounds over time
- Reduces the equity left in the property
- May impact inheritance
- Not always flexible to exit early
Why Reverse Mortgages Need Careful Thought
Reverse mortgages can be useful in the right situation — but they’re not a one-size-fits-all solution.
Because they affect long-term equity and estate planning, they should always be considered carefully and with professional advice.
Is a Reverse Mortgage Right for You or Your Family?
Whether you’re considering one yourself or helping a parent understand their options, clarity matters.
A conversation can help explain how a reverse mortgage works, what alternatives exist, and whether it aligns with long-term goals.
