Thinking about a reverse mortgage? Be careful
So, it may be tempting for ageing Australians to be told there's an option where they can stay in their own home while unlocking some of the equity in that home – especially if they are feeling the pinch with cash flow.
Every time economic conditions get tough, financial advisers see a rise in inquiries from asset-rich, cash-poor retirees about whether they should take out a reverse mortgage.
In my more than 25 years of providing financial guidance, not once have I found a situation where I thought a reverse mortgage was the best option for a client.
Let me explain why.
Fading from popularity in the aftermath of the Hayne royal commission into Australia's banking sector (2017-19), when the major banks moved away from providing the product, the reverse mortgage is on the rise again.
Interest is compounded, so you pay interest on the interest – which can cause the loan balance to grow quickly and erode the equity you've built up in your home.
IBISWorld figures from 2024-25 show a rapidly growing $429.3 million market offering a solution that, at first glance, seems attractive to cash-poor seniors who don't have assets outside their home.
Put simply, a reverse mortgage is a product that allows homeowners to unlock their home's value to supplement their cash flow, without having to make monthly repayments.
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