What Is a Reverse Mortgage? Costs and the HEAS

A reverse mortgage is a loan against your home that you don’t repay while you live there. Interest is added to the balance instead, and the whole debt is repaid when you sell, move out or die and your estate sells. Moneysmart describes it as an option for people aged 60 or older who own their home, and says the interest rate is likely to be higher than on a standard home loan.

The catch is compounding. You pay interest on the interest, every month, for as long as the loan runs. Over a long retirement that adds up quickly. Time does the damage.

How much you can borrow

Less than most people expect. Moneysmart’s guide is that at 60 the most you can borrow is likely to be 15 to 20% of the home’s value, adding about 1% for each year after that. The law points the same way. Under the National Credit Regulations, a reverse mortgage is presumed unsuitable if the loan is more than 15% of the value for a borrower of 55, plus one percentage point for each year over 55, so 20% at 60 and 30% at 70. The youngest borrower’s age is the one that counts.

The minimum loan is typically about $10,000, according to Moneysmart, though each lender sets its own floor and its own maximum. You can usually take it as a lump sum, a regular payment, a line of credit or a mix.

What it costs, and how fast it grows

Reverse mortgages are a specialist product now. CommBank stopped offering its reverse mortgage for seniors from 1 January 2019, and the lenders still in the market are small. Heartland Bank’s rate was 9.24% a year, with a comparison rate of 9.27%, when we checked on 11 October 2026.

Here’s a hypothetical, run through our reverse mortgage calculator with invented details. A 70-year-old draws a $200,000 lump sum against a $2,000,000 home at 7%, compounding monthly, and makes no repayments. After 10 years the balance is about $401,900, double what was borrowed. After 20 it’s about $807,700, around 40% of today’s value. At 9.24% the 20-year figure would be about $1,260,500.

Nobody pays any of that back in the meantime, which is the appeal. It’s also why the estate gets less.

How you draw it changes the cost. Moneysmart notes that a lump sum costs more because the interest compounds on all of it from the first month. Drawing $1,500 a month instead, hypothetically at the same 7%, adds up to $180,000 over 10 years and a balance of about $259,600, against $401,900 for the lump sum.

Our calculator’s 7% default isn’t a guess at any lender’s rate. ASIC’s reverse mortgage calculator, which lenders and brokers use for the projections they must show you, sets the rate at 7% a year by default and adds a scenario with the rate 2% higher. It also runs the home’s value at 3% growth and at none. Ask for the version with no growth.

The Home Equity Access Scheme

The government runs its own version. The Home Equity Access Scheme, formerly the Pension Loans Scheme, lends against Australian real estate at 3.95% a year, compounding fortnightly, a rate the Department of Veterans’ Affairs confirmed on 11 September 2026. Run the same $200,000 through the calculator at that rate and it’s about $296,800 after 10 years and $440,400 after 20.

You don’t have to be getting the pension. Services Australia says you can get the loan if you qualify for a pension but your rate is zero because your income or assets are over the limit, which opens it to plenty of self-funded retirees. Your partner has to agree to the application. Services Australia’s own example is a 72-year-old whose income or assets are too high for any pension payment, and who can still apply.

The limits are the trade-off. The most you can borrow depends on your age and the home’s value: Services Australia rounds the value down to the nearest $10,000 and applies an age component, which on a $2,000,000 home gives a 67-year-old $548,000 in total.

The bigger limit is how fast you can draw it, because your pension and loan payments together can’t exceed 150% of the maximum pension rate a fortnight. On the maximum single rate of $1,237.70 a fortnight from 20 September 2026, that’s a combined ceiling of about $1,856.55. Lump sums are limited to two advances in any 26 fortnights, each up to half the annual maximum rate.

What protects you

Reverse mortgages taken out from 18 September 2012 carry negative equity protection, so you can’t owe more than the home is worth. If yours is older, check the contract. The government scheme has the same guarantee, and you can repay it in part or in full at any time. Moneysmart also notes you may be able to protect part of your equity from the loan, to keep money aside for aged care, for example.

Before you sign, Moneysmart suggests thinking through the effect on your Age Pension, aged care, future living costs and what you’ll leave. Who else lives there matters too. If a partner or adult child lives with you and isn’t on the loan, ask what happens to them when you move into care or die.

A reverse mortgage isn’t the only form of equity release: with home sale proceeds sharing, also called home reversion, you sell a share of the home’s future value for a discounted lump sum now and keep living there. The discount depends on your age, and some providers refund part of it if the home is sold sooner than expected.

When an ordinary loan is cheaper

If you have income, a reverse mortgage may not be the cheapest way to borrow. A standard loan secured on the home and repaid from a super pension costs far less: the average variable rate on new owner-occupier loans was 6.23% in August 2026, on the Reserve Bank’s figures, against Heartland’s 9.24% above. Lenders will ask how you’d repay it, and an older borrower usually needs a clear answer, such as selling at a set point.

Age alone doesn’t rule you out, but the repayments have to work on your retirement income, and a lender will want to see that they do before it lends.

Our view

Our view, and it costs us business: for most retirees who qualify, the Home Equity Access Scheme is the cheaper way to do this, and by a long way. A rate under half of what the lenders charge outweighs the lower limits for most people who only need to top up their income. A lender’s reverse mortgage makes more sense for a larger lump sum, say for home modifications, or for someone who can’t meet the pension rules at all. Either way, it’s worth comparing against selling and moving, which our downsizer contribution guide covers.

Charlie handles reverse mortgage enquiries for us, and starts by asking what the money is for, because that usually decides between a lump sum, a regular draw and the government scheme. What we can’t do is arrange the government scheme, because you apply through Services Australia directly. We also can’t tell you how it will affect your pension or aged care, so a Services Australia Financial Information Service officer or a financial adviser should see the numbers before you sign anything. If the answer is a lender’s reverse mortgage, Charlie compares the ones still offering it and goes through ASIC’s projections with you. If it’s the government scheme, we’ll say so and point you to Services Australia.