Are Reverse Mortgages a Scam? We ask Reddit users

Are reverse mortgages a scam in Australia?

No. A reverse mortgage offered by a properly licensed Australian lender is a legitimate type of home loan.

A reverse mortgage allows you to use your home as security and receive money without immediately selling the property. You remain the registered owner. The amount borrowed, interest and fees are normally repaid when you sell, permanently move out, or your deceased estate sells the property.

Australian reverse mortgages are subject to the National Credit Act and specific consumer protections. Reverse mortgages taken out from 18 September 2012 also have negative equity protection, which means you cannot be required to repay more than the market value of the home.

That does not mean every reverse mortgage is suitable.

A product can be legal and still be the wrong financial decision. A retiree who borrows a modest amount to make their home safer may have a very different outcome from someone who takes the maximum available lump sum and leaves it sitting in a bank account while interest compounds.

Why do people think reverse mortgages are scams?

Reverse mortgages trigger suspicion because the sales pitch can sound unusually generous:

• receive money from your home


• make no compulsory monthly repayments


• keep living in the property


• repay the loan much later.

Naturally, people wonder where the catch is.

The catch is the long-term cost. Interest is added to the balance and interest is then charged on that interest. Your debt increases while the amount of equity you own outright usually decreases.

There is also a history of aggressive overseas advertising, confusing contracts and products being sold to people who did not understand the future consequences. Many online discussions are based on reverse mortgage products in the United States or Canada, where the laws, insurance arrangements, fees and enforcement processes differ from those in Australia.

The concerns themselves are still worth examining.

What people on Reddit say about reverse mortgages

The Reddit discussions supplied for this article reveal why reverse mortgages attract such strong reactions.

One commenter described a reverse mortgage as broadly resembling an ordinary mortgage with additional conditions, except the balance moves in the opposite direction. Instead of gradually paying down a loan, the homeowner allows the amount owing to grow. Read the Reddit comment.

Another commenter focused on the accumulating debt, explaining that the amount owing can grow month by month until the property is eventually sold. Read the Reddit comment.

A separate discussion noted that the homeowner generally retains ownership while their equity reduces over time. Read the Reddit comment.

Those observations capture the basic mechanics reasonably well. Under an Australian reverse mortgage, you remain the owner, but the lender holds a mortgage over the property and must be repaid before you or your estate receives the remaining sale proceeds.

Reddit users see legitimate reasons for reverse mortgages

Some commenters argued that a reverse mortgage can help an older person stay at home rather than move before they are ready. They described using home equity to pay essential bills, maintain the property or arrange assistance at home. Read the discussion.

An Australian commenter suggested that the product may be particularly useful when a homeowner has no strong desire to preserve the property as an inheritance. Read the AusFinance comment.

This raises a point that is often lost in family discussions: the home belongs to the retiree.

Children may reasonably want their parents to avoid an unsuitable loan, but an expected inheritance is not the same as a current ownership interest. A retiree may decide that using part of their property wealth to remain independent is more important than leaving the maximum possible estate.

Fees and compound interest are the biggest concern

Several Reddit users highlighted high fees and the effect of compound interest. One commenter focused on reverse mortgage fees, while another described the interest as compounding against the homeowner’s equity.

That concern is well founded.

Moneysmart says reverse mortgage interest rates are likely to be higher than rates on standard home loans. Costs may also include establishment, valuation and ongoing fees. Taking the money as a large lump sum generally costs more than drawing smaller amounts over time because interest begins accumulating on the entire amount immediately.

Inheritance creates strong opinions

Some Reddit comments reduce the issue to there being less money left for children. One response bluntly raised the loss of an inheritance, while another argued that much of the hostility comes from prospective heirs expecting to receive the house.

Both perspectives are incomplete on their own.

A reverse mortgage will usually reduce the estate because the debt must be repaid before beneficiaries receive the remaining equity. Yet preserving an inheritance should be balanced against the homeowner’s comfort, health, independence and financial security.

The sensible approach is to estimate how much equity may remain under conservative assumptions and discuss those figures with the family, rather than arguing over whether borrowing is morally right or wrong.

Homeownership costs do not disappear

Some overseas Reddit commenters warned that homeowners still need to meet expenses such as taxes, insurance and property maintenance. Read one comment about continuing property expenses and another more strongly worded warning about breaching loan conditions.

In Australia, the relevant expenses generally include council rates, insurance and maintaining the property. ASIC found that typical Australian reverse mortgage contracts contain continuing obligations to insure the home, pay rates and keep the property maintained. A failure to comply may technically place the borrower in default, although ASIC found lenders rarely relied on these clauses during the period it reviewed.

The Reddit warnings therefore contain a useful principle, but claims of immediate or automatic foreclosure should not be imported from overseas discussions and treated as Australian law.

Reddit users also suggest alternatives

Commenters regularly recommend downsizing. One person calculated that selling could fund decades of rent in their particular example.

Another suggested a home equity line of credit, or HELOC. Read the comment. HELOC is mainly an American term. Australian retirees may instead investigate a standard home loan, equity loan or line-of-credit facility, but these normally require the borrower to demonstrate that they can service the debt.

A final commenter recommended getting help from a neutral professional who could explain the advantages and disadvantages. Read the comment.

That is probably the most useful advice in the entire discussion. Reverse mortgages interact with lending policy, retirement income, Centrelink, aged care, estate planning and family arrangements. One professional may not be qualified to advise on every part.

How does a reverse mortgage work in Australia?

A reverse mortgage is secured against your home.

Depending on the lender and your eligibility, you may receive the money as:

• a lump sum


• regular payments


• a line of credit that you draw from when required


• a combination of these options.

You generally stay in the home without making regular loan repayments. Interest and any capitalised fees are added to the outstanding balance.

The loan is usually repaid when:

• you sell the property


• you permanently move out


• the last borrower dies and the deceased estate sells the property


• another repayment event specified in the contract occurs.

You may be able to make voluntary repayments before then. Some products may also allow you to protect a nominated portion of your equity, although the availability and terms of this feature vary.

Do you still own your home with a reverse mortgage?

Yes.

A reverse mortgage does not ordinarily involve transferring ownership of your property to the lender. Your name remains on the title and you continue to receive the benefit of any increase in the property’s value.

The lender registers a mortgage over the property as security.

When the home is sold, the reverse mortgage is repaid from the proceeds before the remaining equity is paid to you or your estate.

For example, suppose the home sells for $900,000 and the reverse mortgage payout is $240,000. After repaying the loan and other sale costs, the remaining proceeds belong to the homeowner or deceased estate.

This is different from a home reversion or home sale proceeds sharing arrangement. Under those arrangements, a provider purchases a share of the future value of the home. It may involve no loan interest, but you give up part of the future sale proceeds.

Can the bank take your house if you have a reverse mortgage?

A lender cannot simply take ownership because you have obtained a reverse mortgage.

You remain entitled to occupy the property while the loan continues, subject to the contract. You must usually:

• continue using the property as your principal residence


• keep it appropriately insured


• pay council rates and relevant property charges


• maintain the home


• comply with the other conditions of the mortgage.

A serious breach may allow the lender to take enforcement action. That is why the contract matters. Ask the lender or broker to explain every circumstance in which the loan can become repayable.

ASIC’s review found only one forced sale among the lenders and period it examined, and that case followed a failure to repay within the required period after the borrower’s death. That historical finding does not guarantee how another lender or future case will be handled, but it provides more context than the claim that lenders routinely seize reverse-mortgaged homes.

Can you lose your home with a reverse mortgage?

You can lose the ability to keep the home if the loan becomes repayable and neither you nor your estate can repay it without selling.

Common repayment events may include selling, permanently moving elsewhere or the death of the last borrower. The exact terms are contained in the loan agreement.

The larger practical risk is often a loss of flexibility.

You may want to move later because the home has stairs, the garden becomes difficult to maintain or you need to live closer to family and medical services. If the reverse mortgage has consumed a large amount of equity, the proceeds remaining after repayment may not be enough to purchase the type of replacement home you need.

You may be protected from owing more than the home’s value while still being left with very little equity.

Can you owe more than your home is worth?

Australian reverse mortgages taken out from 18 September 2012 have negative equity protection.

This means the amount recoverable by the lender is generally limited to the market value of the property. If the home is worth less than the loan balance when it is sold, you or your estate should not be required to pay the remaining shortfall from other assets.

Borrowers with a reverse mortgage entered into before 18 September 2012 should check their contract to determine whether equivalent protection applies.

Negative equity protection is valuable, but it should be viewed as a final safeguard rather than a financial goal. It protects against an additional debt. It does not guarantee that enough equity will remain to fund aged care, buy another home or provide an inheritance.

How quickly does reverse mortgage interest compound?

The balance grows according to:

• the amount borrowed


• when each amount is drawn


• the interest rate


• fees added to the loan


• voluntary repayments


• the length of time the loan remains open.

Consider a simplified example of a $100,000 lump-sum loan at 8% a year, with no repayments, no fees and annual compounding.

The approximate balance would be:

• $146,933 after five years


• $215,892 after 10 years


• $317,217 after 15 years


• $466,096 after 20 years.

This example is for explanation only. Reverse mortgage rates are commonly variable, lenders may compound interest more frequently and fees may also be added.

Property growth may offset some of the reduction in equity, but future growth is not guaranteed. A proper assessment should model several possibilities, including:

• interest rates increasing


• property values remaining flat


• living in the home longer than expected


• drawing additional money later


• selling earlier than planned.

Your lender or broker must take you through projections showing the possible effect on your home equity over time. Ask for a copy and do not rely only on the most optimistic scenario.

Why are reverse mortgages considered bad?

Reverse mortgages are often considered bad because the cost is delayed and therefore easy to underestimate.

With a normal home loan, you see money leaving your bank account each month. With a reverse mortgage, the cost may remain largely invisible until you request a payout figure or sell the property.

The major disadvantages are:

The balance grows instead of shrinking

Interest is added to the debt. The longer you hold the loan, the more interest may be charged on earlier interest.

Interest rates are generally higher

Moneysmart states that reverse mortgage rates are likely to be higher than standard home-loan rates.

Fees can also compound

Establishment, valuation, legal and ongoing fees may apply. When fees are added to the balance, you may pay interest on those amounts as well.

Your inheritance will probably be smaller

The reverse mortgage must be repaid before the remaining estate can be distributed.

Your future housing choices may narrow

The remaining equity may be insufficient to buy a replacement home in the area where you want to live.

Aged-care funding can become harder

ASIC found that erosion of home equity may reduce a borrower’s ability to fund future aged-care accommodation, medical treatment and living expenses.

Other people living in the property may be affected

A spouse, relative, carer or adult child who is not a borrower may not have an automatic right to remain after the borrower permanently moves out or dies.

Before signing, identify everyone living in the home and obtain legal advice about their position.

Is a reverse mortgage a rip-off?

A reverse mortgage may look like a rip-off when the amount eventually repaid is compared only with the amount originally borrowed.

Borrowing $100,000 and later owing $300,000 can feel disproportionate. Yet the homeowner has also had access to the money and deferred repayment for many years while remaining in the property.

A better question is whether the benefit received justifies the cost.

Using a modest amount to install an accessible bathroom, repair a roof or arrange essential support at home may provide substantial value.

Taking the maximum loan to fund discretionary spending, lend money to relatives or invest in a speculative scheme carries a very different risk.

The product should be compared with the real alternatives available to you, including their financial and personal costs.

Are reverse mortgages only a last resort?

Some people treat reverse mortgages as a last resort. Others use them as one part of a planned retirement strategy.

There is no universal answer.

A reverse mortgage is more likely to be appropriate when:

• you want to remain in your current home


• most of your wealth is tied up in the property


• you need funds for a clear and worthwhile purpose


• regular loan repayments would be unaffordable


• you are borrowing a conservative amount


• you have considered your likely aged-care needs


• enough equity is being preserved for a future move


• anyone else living in the home is protected


• you understand the cost under less favourable scenarios.

ASIC’s research found that reverse mortgages could improve living standards and help older Australians remain in their homes. ASIC also found that lenders needed to do more to help borrowers consider long-term needs, especially aged care and future financial capacity.

When is a reverse mortgage a bad idea?

A reverse mortgage deserves particular caution when:

• you expect to sell or move soon


• you are borrowing the maximum simply because it is available


• the money has no defined purpose or budget


• you plan to leave a large lump sum sitting unused


• someone is encouraging you to invest the proceeds


• a family member wants you to borrow for their benefit


• you are relying on strong property growth to make the numbers work


• your home is your only realistic source of future aged-care funding


• protecting a large inheritance is a firm priority


• a non-borrowing partner or relative expects to remain in the home


• you have not compared the Home Equity Access Scheme


• the person selling the product is rushing or pressuring you.

Moneysmart warns that borrowing against your home to invest places the whole home at risk, rather than only the money invested.

What happens to a reverse mortgage when you die?

When the last borrower dies, the debt becomes an obligation of the deceased estate.

The executor should contact the lender, obtain an updated payout figure and confirm the required repayment process.

The beneficiaries will generally have two broad options:

1. Sell the property and repay the loan from the sale proceeds.


2. Repay or refinance the reverse mortgage using other funds and retain the property.

After the loan and selling costs are paid, the remaining proceeds form part of the estate.

The beneficiaries do not simply inherit the original home free of the reverse mortgage. They inherit the estate’s remaining interest in the property after the secured debt has been dealt with.

The no-negative-equity protection generally means the lender cannot recover more than the property’s market value for protected Australian loans.

Repayment periods and any available extensions depend on the lender and contract. Estate planning should be completed before borrowing so that the executor knows who to contact and what the family intends to do.

What happens if you move into aged care?

Permanently leaving the property may trigger repayment of the reverse mortgage.

This can create a difficult sequence:

1. You need to leave the home.


2. The reverse mortgage becomes repayable.


3. The home may need to be sold.


4. The remaining equity must contribute to your next accommodation and care arrangements.

The crucial issue is how much equity remains at that point.

Before borrowing, model the possibility that you move into care in five, 10 or 15 years. Consider the likely loan balance and how much of the property’s value might remain under conservative assumptions.

ASIC has specifically identified aged-care funding as an area borrowers may not consider adequately when taking out a reverse mortgage.

Does a reverse mortgage affect the Age Pension?

A reverse mortgage does not automatically cancel your Age Pension.

The effect depends on:

• how the money is paid


• how much you receive


• whether it remains in a bank account


• whether it is invested


• what assets you purchase


• whether money is given to another person.

Your principal home is generally exempt from the Age Pension assets test. Money released from the home and retained as cash or used to buy assessable assets may be treated differently. Financial investments can be included under the assets test and subject to deeming under the income test.

Speak with the Services Australia Financial Information Service before drawing the money. A mortgage broker can explain the loan, but Centrelink treatment should be confirmed with Services Australia or another appropriately qualified adviser.

Is the Home Equity Access Scheme better than a reverse mortgage?

The Australian Government’s Home Equity Access Scheme, or HEAS, allows eligible people of Age Pension age to receive a voluntary non-taxable loan secured against Australian real estate.

As at July 2026, the HEAS interest rate is 3.95% a year, compounded fortnightly. The scheme also includes a no-negative-equity guarantee. Payments may be received fortnightly, as a limited advance payment, or through a combination of both.

People who do not currently receive an Age Pension may still qualify if they meet the scheme’s requirements. Combined pension and HEAS loan payments may be available up to 150% of the maximum qualifying pension rate.

HEAS has limitations. It may not provide a large enough lump sum for major renovations, debt repayment or another substantial expense. Advance payments are capped and may reduce the regular loan payments available for the following 26 fortnights.

An advance secured against the principal home is exempt from the assets test for the first 90 days, but it is an assessable financial asset after that period if it remains unspent. Deeming may also apply.

HEAS should usually be investigated before choosing a private reverse mortgage, particularly where the objective is to supplement regular retirement income.

What are the alternatives to a reverse mortgage?

Downsizing

Selling and buying a less expensive property can release equity without creating a compounding loan.

The calculation should include:

• real estate agent and legal costs


• moving expenses


• stamp duty on the replacement property


• renovations or accessibility changes


• body corporate fees


• the cost of finding a suitable home in the same community.

Downsizing may be financially sensible while still being personally unattractive. Leaving friends, neighbours, doctors and familiar surroundings has a real cost, even though it does not appear on a spreadsheet.

Home Equity Access Scheme

HEAS may be suitable for eligible retirees who need an income supplement or a smaller advance rather than a large private loan.

A standard home loan or equity facility

A normal mortgage, refinance or equity loan may have a lower interest rate. It will usually require sufficient income to meet the lender’s servicing rules and regular repayments.

For many retirees, servicing rather than equity is the obstacle.

Drawing smaller amounts over time

A line-of-credit structure may reduce interest compared with taking the entire approved amount immediately.

Interest is generally charged only on amounts drawn, although fees and lender terms need to be checked.

Making voluntary repayments

Paying some or all of the interest may slow the growth of the balance. This only makes sense where the repayments remain affordable and do not undermine the reason for obtaining the loan.

Family assistance

Adult children or other relatives may be able to provide support.

Any family loan or contribution should be documented by a solicitor. The agreement should explain:

• whether the money is a gift or loan


• whether interest applies


• when it must be repaid


• what happens when the property is sold


• how it is treated under the will


• what happens if relationships change.

Financial counselling and government assistance

A reverse mortgage may be unnecessary if the immediate problem can be resolved through concessions, hardship assistance, a No Interest Loan or another support program.

Financial counselling is free and confidential through not-for-profit community organisations.

How do reverse mortgage scams work?

An actual reverse mortgage scam usually involves more than an expensive loan.

A scammer may try to use the homeowner’s equity to fund another transaction, obtain control of the proceeds or transfer an interest in the property.

Common warning signs include:

• unsolicited calls or home visits


• pressure to sign immediately


• promises that the loan is free


• claims that property values can only rise


• guaranteed investment returns


• being told to borrow and invest the proceeds


• instructions to transfer money to another person


• a family member pressuring you to borrow for them


• being discouraged from speaking with your solicitor


• no written loan projections


• no credit guide or clear licence information


• being asked to conceal the transaction from your family


• being asked to sign blank or incomplete documents


• a salesperson who cannot explain compound interest


• confusing a reverse mortgage with the sale of part of your home.

The most dangerous arrangement may involve a legitimate reverse mortgage combined with a fraudulent investment. The lender advances the money correctly, but the scammer steals or misuses the proceeds. The homeowner is still responsible for the reverse mortgage debt.

How can you check whether a reverse mortgage provider is legitimate?

Ask for the business’s:

• Australian credit licence number


• credit representative number, where applicable


• credit guide


• complaints process


• AFCA membership details


• complete fee schedule


• written loan projections.

Use the ASIC Professional Registers Search to check whether a person or organisation is licensed or authorised to provide the service. ASIC allows searches by name, company, licence number, ACN or ABN.

A licence check confirms that the business is recorded on the register. It does not guarantee that every recommendation it makes will suit you.

What questions should you ask before signing?

Ask the lender or broker to answer these questions clearly and in writing:

1. What is the current interest rate?


2. Is the interest rate fixed or variable?


3. What fees will I pay at settlement?


4. What ongoing fees apply?


5. Which fees will be added to the loan?


6. What will I owe after five, 10, 15 and 20 years?


7. What happens if interest rates rise by 2% or 3%?


8. What happens if my property does not increase in value?


9. Can I draw the money gradually?


10. Can I make voluntary repayments?


11. Can I protect a fixed amount or percentage of my equity?


12. What events cause the loan to become repayable?


13. What happens if I move into residential aged care?


14. What happens if my partner remains in the property?


15. What rights does another resident have?


16. How much time will my estate have to repay the loan?


17. Can my beneficiaries retain the property by repaying the debt?


18. How could the funds affect my Age Pension?


19. What alternatives have been considered?


20. How does the proposal compare with HEAS?


21. Is the lender a member of AFCA?


22. Can I take the projections and documents away before deciding?

Be wary of anyone who becomes impatient with these questions. You are considering a loan secured by what may be your largest asset. Taking time is part of the process.

What should you do if you think you were misled?

Start by making a written complaint to the lender, broker or financial firm.

Explain:

• what you were told


• what you believe was misleading or inappropriate


• when the relevant conversations occurred


• the financial loss or problem caused


• what outcome you are seeking.

Keep copies of emails, projections, application documents, call notes and advertisements.

If the complaint is not resolved, the Australian Financial Complaints Authority can consider complaints involving credit, finance and loan products. AFCA can consider issues including misleading information, inappropriate credit assistance and incorrectly applied costs. Its service is free to consumers.

Suspected fraud or scams should also be reported to the relevant authorities promptly.

Are reverse mortgages safe for pensioners?

Australian reverse mortgages have important protections, but no loan secured against your home is risk-free.

The main protections include:

• continued ownership of the property


• mandatory loan projections


• responsible lending obligations


• negative equity protection for loans from 18 September 2012


• access to internal dispute resolution and AFCA


• credit licensing requirements.

The main financial risks remain:

• compound interest


• higher rates and fees


• reduced equity


• less money for aged care


• fewer options when moving


• a smaller estate


• obligations to insure and maintain the property.

Safety therefore depends on more than whether the product is regulated. It depends on how much you borrow, why you borrow it, how you draw the money and whether you preserve enough equity for later life.

The final verdict: are reverse mortgages a scam?

Reverse mortgages are not scams simply because the loan balance grows or the lender is repaid when the home is sold. Those are disclosed features of the product.

The real questions are whether:

• the costs have been explained properly


• the loan suits the homeowner’s objective


• the amount borrowed is reasonable


• future aged-care and housing needs have been considered


• other residents are protected


• alternatives have been compared


• the borrower is free from pressure or manipulation.

For the right homeowner, a carefully structured reverse mortgage can release money that improves daily life and allows them to remain at home.

For someone who borrows too much, ignores future care needs or is pressured into using the money for somebody else, the same product can cause serious harm.

That is why the most honest answer is neither “reverse mortgages are a scam” nor “reverse mortgages are perfectly safe”.

They are long-term loans secured against your home. Treat them with the same level of care that statement deserves.

Speak with a mortgage broker about your options

A qualified mortgage broker can explain how reverse mortgages work, compare available loan structures and help you understand the lending costs and projections.

Before proceeding, you should also consider independent legal advice and contact the Services Australia Financial Information Service about possible Centrelink effects. Tax, aged-care, estate-planning and personal financial advice should be obtained from appropriately qualified professionals.

This article provides general information only. It does not consider your objectives, financial situation or needs and is not financial, legal, tax, Centrelink or aged-care advice.

Independent information and calculators

• Moneysmart: Reverse mortgage and home equity release



• ASIC review of reverse mortgage lending in Australia


• Services Australia: Home Equity Access Scheme


• ASIC Professional Registers Search


• AFCA credit, finance and loan complaints


• Moneysmart financial counselling information