A reverse mortgage is a good idea for a 78-year-old widow in a mortgage-free home who needs $25,000 for a hip operation and has no other way to get it. It is a poor idea for a 61-year-old couple who want to borrow $200,000 to give the kids a deposit.
Same product, opposite answers. Heartland’s own figures say the average age of their youngest new borrower is 73 and the average initial loan is around $82,000, and that profile is no accident. It is roughly where the product works best.
The Situations Where It Usually Makes Sense
A specific, bounded need and no other way to meet it. A roof, a car that will last, dental work, a heat pump, clearing a credit card that is eating the pension. The amount is known, it is modest relative to the house, and once it is spent the problem is solved.
Age 70 or over. The older you are, the shorter the time the interest has to compound, and the larger the share of the house the lender will advance. A loan taken at 75 that runs ten years costs far less, as a share of the home, than one taken at 62 that runs twenty-three.
A house you intend to stay in. The product is designed around staying put. If the house suits you and the suburb is where your life is, borrowing against it to stay there is what it is for.
A family that knows and agrees. The loans that go well are the ones where the children were in the room at the start, understood that their inheritance would be smaller, and preferred that to watching a parent go without.
A small top-up rather than a transformation. Heartland’s monthly advance option, minimum $300 a month, suits people whose Super falls short by a few hundred dollars. Drawn that way, the compounding is slow because each month’s advance has only started accruing interest.
The Situations Where It Usually Does Not
Under 65 and borrowing the maximum. At 60 Heartland allows 20 percent of the home’s value. Taking all of it means two decades of compounding from a large base. The balance can plausibly reach the 50 percent lending cap before you are 80, and the lender will then decline any further advance.
A short stay. If you expect to sell within three to five years, the arrangement fee, valuation and legal costs are spread over too few years, and a bridging loan or a standard loan may be cheaper.
Gifting large sums to children. Borrowing at 8.25 percent compounding to give money away is expensive for you and often tax-neutral for them. There are better ways to help a child into a home, including a family guarantee arrangement with their lender, and I will point you to them.
Replacing income you could earn or claim. Before borrowing to live on, check what you are entitled to. The Accommodation Supplement, rates rebates through your council, the Winter Energy Payment and the Disability Allowance are all underclaimed by homeowners over 65. Work and Income can tell you in one visit.
Property the lenders are wary of. Leasehold, some apartments, lifestyle blocks, homes in small or remote towns and retirement village units are either declined or lent against at lower limits. If your property is one of these, find out before you plan around the loan.
The Question Most People Forget To Ask: How Long Will You Stay?
Every projection of a reverse mortgage turns on one number nobody can know, which is how many years the loan runs. Heartland’s average term at repayment is just over six years. Many run far longer.
Ask yourself honestly: is this the house I will be in at 85? If yes, the loan will run a long time and should be small. If no, when will I leave, and would a different arrangement be cheaper for that period?
Answering that question well is worth far beyond any rate comparison.
What Your Family Will Want To Know
Adult children ask the same three things. Will Mum lose the house? No, not while she lives there and keeps up the rates and insurance. Will we be left with debt? No, the no negative equity guarantee means the lender carries any shortfall. Will there be anything left? Usually yes, often a great deal, but less than there would have been, and the gap grows every year the loan runs.
Have that conversation before the application, not after settlement. SBS asks that families are involved as part of its process, and Heartland recommends it. Both are right.
A Second Opinion Before You Sign
The lenders are straightforward about their products and their staff explain them well. What they are not set up to do is tell you whether you should be doing this at all, whether the other lender would suit your property better, or whether a smaller loan would do.
That is what I do. The first conversation is free and I will tell you if the answer is no. Read about reverse mortgage advice or start with the complete guide.
