Reverse Mortgages: Key Things to Consider Before You Decide
A reverse mortgage can be a helpful option in the right circumstances — but it’s not a decision to make lightly.
Before going ahead, it’s important to step back and look at the bigger picture. These are the key things to consider so you can decide whether a reverse mortgage genuinely fits your situation, goals, and future plans.
Your Long-Term Plans for the Home
Reverse mortgages tend to work best when you plan to stay in your home long-term.
If you’re likely to downsize, move into care, or sell in the near future, the costs may outweigh the benefits. Understanding how long you expect to remain in the property is a crucial starting point.
How Much Equity You’re Comfortable Using
Accessing equity now means there may be less later.
While you don’t need to borrow the maximum available, it’s important to think about how much equity you want to preserve — whether for future needs, flexibility, or your estate.
The Impact of Compounding Interest
Interest on a reverse mortgage compounds over time, meaning interest is charged on interest.
This can cause the loan balance to grow quickly over the years. Seeing long-term projections can help you understand how this might affect your equity in 5, 10, or 15 years.
How You’ll Use the Funds
Reverse mortgages are generally more effective when used with a clear purpose.
They’re often used to:
- Support retirement income
- Cover medical or care-related expenses
- Fund essential home modifications
Using the funds without a plan can limit future options.
Your Ongoing Responsibilities
Even with a reverse mortgage, you remain responsible for:
- Property maintenance
- Council rates
- Insurance
It’s important to be confident you can continue meeting these obligations over time.
The Effect on Your Estate and Family
Reverse mortgages can reduce the value of your estate.
Having open conversations with family early can help manage expectations and avoid misunderstandings later.
Fees and Loan Conditions
Not all reverse mortgages are the same.
It’s important to understand:
- Establishment and ongoing fees
- Interest rates
- Exit or early repayment conditions
Alternative Options
A reverse mortgage is usually one option among several.
Other options may include downsizing, refinancing, government assistance, or family arrangements. Comparing alternatives can help ensure you choose the most suitable path.
The No Negative Equity Guarantee
In Australia, reverse mortgages include a no negative equity guarantee.
This means you or your estate won’t owe more than the property’s value — but it doesn’t remove the impact of reduced equity over time.
The Bottom Line
A reverse mortgage can provide flexibility and peace of mind when used thoughtfully — but it’s a long-term decision with lasting implications.
Taking the time to consider these factors carefully can help ensure it supports your lifestyle, financial security, and future plans.
Want Help Deciding If a Reverse Mortgage Is Right for You?
If you’re exploring a reverse mortgage for yourself or a family member, a conversation can help you weigh the considerations, compare alternatives, and move forward with confidence.
