How a Reverse Mortgage in Australia Can Help Fund Your Retirement
Retirement should give you room to breathe, time to say yes to all that brings you joy in life. But for many Australians, the money coming in from their super or the Age Pension doesn't quite stretch to cover the life they'd planned. Meanwhile, there's often a large amount of wealth sitting quietly in the family home.
A reverse mortgage is one way to put that home equity to work. It allows homeowners aged 60 and over to access some of the money in their home, without having to sell it and without having to move. You get to stay in the home you love, and the loan is repaid later, usually when the home is eventually sold.
The government offers its own version of a reverse mortgage through its Home Equity Access Scheme, sometimes still called the pension loans scheme, which lets eligible retirees draw on their home equity through Centrelink or the Department of Veterans' Affairs. A reverse mortgage from a provider such as Household Capital works differently and generally offers more flexibility in how and when you access funds, as well as the amount of money you can access.
What is a reverse mortgage?
A reverse mortgage is a loan secured against your home that lets you access some of its value while you continue to live there. Unlike a standard home loan, you don't need to make regular repayments. Instead, the interest is added to the loan balance over time, and the full amount is repaid as follows:
- If you sell your home, it is repaid as part of the settlement process.
- If you leave your home to enter residential aged care, you have five years before the home must be sold and the loan repaid.
- If you remain in your home until you pass away, your estate has 12 months in which to repay the loan.
You can typically choose how you receive the funds, whether as a lump sum, a regular income stream, or a combination of these. This flexibility is one of the main reasons Australians choose a reverse mortgage over other ways of accessing their home equity.
Importantly, you retain full ownership of your home. Household Capital's loans also come with a guarantee of lifetime occupancy, so you can stay in your home for as long as you choose. And because the money you receive is a loan rather than income, it's generally tax free. If taken as an income stream it doesn't affect your Age Pension entitlements, although a lump sum sitting in a bank account may affect your assets test. If you receive any benefits from Centrelink, it’s always wise to check with them first to ensure you don’t inadvertently affect your entitlements before accessing home equity.
To be eligible, you typically need to be aged 60 or over and own your home, either outright or with a small remaining mortgage balance. The amount you can access depends on factors like your age and the value of your property, with older homeowners generally able to unlock a higher percentage of their home's wealth.
You can use our simple online calculator to see how much you could access.
Reverse mortgage vs the Home Equity Access Scheme
When it comes to releasing equity from your home, Australians generally have two main options: a reverse mortgage through a specialist provider, or the government's Home Equity Access Scheme.
The Home Equity Access Scheme is run by Services Australia through Centrelink or the Department of Veterans' Affairs. It allows eligible retirees – those of Age Pension age – to receive a voluntary non-taxable loan, paid fortnightly, secured against real estate they own in Australia. Payments are capped at 1.5 times the maximum Age Pension rate. The total amount you can borrow – which determines the duration of payments to you – depends on your age and the value of your property.
Once you know the amount you can borrow, you can choose how to receive the money. You can elect to get the loan amount as a fortnightly income, an advance payment of the loan as a lump sum or a combination of both.
If you receive an Age Pension, your combined loan and pension payment each fortnight can’t be more than 150% (1.5 times) of your maximum pension rate. If your pension changes, your loan payments will be adjusted so the combined amount doesn’t go over 150% of your pension rate.
If you’re a self-funded retiree, you can get a fortnightly loan payment up to the full 150% of the maximum rate of your qualifying pension, generally considered to be the Age Pension.
The major differences between the Home Equity Access Scheme and commercially available reverse mortgages are:
- The total amount available to you: commercial reverse mortgages tend to offer higher borrowing limits
- Age of access: commercial reverse mortgages are generally available to individuals 60 plus, whereas the Home Equity Access Scheme is tied to the Age Pension age (currently 67)
- National Consumer Credit Protection Act 2009: commercial reverse mortgages are governed by this Act which provides a range of consumer protections. The Home Equity Access Scheme is not subject to this Act or its consumer protections, although the ‘No Negative Equity Guarantee’ applies.
- Interest: the interest rate for the Home Equity Access Scheme is set by the Minister for Social Services and is currently 3.95% per annum. The interest rates on commercial reverse mortgages are typically higher and, because they are variable and not fixed rate, tend to move with changes to the RBA cash rate.
Neither option is right or wrong. Some retirees use the Home Equity Access Scheme alongside their pension for a modest, steady top-up. Others need more flexibility or a larger amount, and find a reverse mortgage better suited to their circumstances. Understanding both gives you the full picture before deciding what best works for you.
Five ways a reverse mortgage can fund your retirement
Every retiree's situation is different, which is why a reverse mortgage isn't a one-size-fits-all product. It’s flexible – because we know you need adaptability and choice to make important decisions about your retirement funding.
Here are five of the most common ways Australians are using reverse mortgages to access the wealth in their homes to support the retirement they want.
Boost your regular income
For many retired Australians, income received from super and/or the Age Pension simply doesn't stretch as far as it used to. Thanks to the rising cost of living, an unexpected bill or home repair can derail the most careful budget.
A reverse mortgage can be used to top up your regular income and provide a buffer for those unexpected costs that always seem to come along, whether it's a broken appliance or a larger than usual power bill. Rather than watching your savings shrink or having to go without something else to cover the cost, you can draw on your home equity to boost your cash flow and reduce the day-to-day pressure.
A bit more income can also help you say yes to more in retirement. Our customer Vivienne used her home equity to provide a regular income stream. It gave her a buffer against unexpected expenses and, importantly, empowered her to say yes to the things in life that brought her joy.
Refinance or consolidate debt
More than 40% of our customers use their home equity to refinance a traditional home loan and/or consolidate other debt. If you're still paying a mortgage or juggling multiple debts into retirement, a reverse mortgage can help simplify things.
By refinancing an existing mortgage or consolidating debts into one facility with no regular repayments required, you can free up your cash flow and take some of the stress out of managing your finances month to month.
This was the case for our customer Pam. She and her husband retired with a small mortgage, but were unable to refinance it for more favourable terms. By using a Household Loan, the couple was able to refinance their existing mortgage and free themselves from the burden of regular monthly repayments.
Fund your lifestyle
Retirement should include room for the things that make life enjoyable and comfortable, not just the essentials. Whether it's renovating your home, replacing an ageing car, taking a long-awaited trip or simply covering everyday expenses more comfortably, a reverse mortgage gives you access to funds for the lifestyle you've worked so hard to enjoy.
Like so many retired Australians, our customers Diana and Joe have a pension that's enough to cover their everyday needs, but they didn’t have anything left over to enjoy the lifestyle they’d looked forward to. By unlocking their home equity, the couple has been able to travel to Vancouver with family and enjoy the peace of mind they wanted in retirement, knowing they have a buffer against unforeseen expenses.
Cover care costs
Medical, dental and in-home support costs can add up quickly, and aged care fees are a significant expense for many families. A reverse mortgage can help cover these costs as they arise, giving you and your family more options when it comes to care, without having to sell the family home to pay for it.
The costs associated with quality in-home care add up quickly, as customers Vicky and John soon discovered. A reverse mortgage provided the couple with the peace of mind that comes from knowing they can afford the excellent care Vicki’s mum Silkie receives in the home she loves.
Support your family
For many grandparents and parents, being able to help family members financially matters just as much as their own retirement goals. A reverse mortgage can provide funds for a grandchild's school fees or to help a child get into their first home. It’s a way of giving to your loved ones when it matters most.
Customer Richard, a former accountant, had witnessed how the right support at the right time could be life changing. Wanting to pass on the gift of education to his grandchildren, Richard sought a solution that allowed him to be generous today while keeping his hard-earned retirement savings untouched.
Retirement looks different for everyone, but the goal is largely the same: enough security and flexibility to enjoy the years ahead without constant financial pressure. For many Australians, the equity built up in their home over the years is one of their largest assets. A reverse mortgage offers a way to put it to use without having to sell up or move on.
Whether you're looking to boost your income, simplify your finances, enjoy your lifestyle, cover care costs or support your family, a reverse mortgage can be shaped to suit your circumstances. It's your home and your money, so the choice of how to use it is yours.
If you'd like to understand how much you could access and what it might mean for your retirement, it's worth having a conversation with a specialist who can walk you through your options.