Can I lose my home or owe more than it’s worth with a reverse mortgage?
For reverse mortgages entered from 18 September 2012, the law says you can’t owe more than your home’s market value. That protects you from debt beyond the home, not your remaining equity or the inheritance. Before assessing suitability, lenders must show you Moneysmart projections and give you a reverse mortgage information statement.
Written by James Chee CPA, Credit Representative 517980 of Global Mutual Funds Pty Ltd (ACL 222640), FBAA member·Reviewed by Graham Chee FCPA·Last reviewed
Key facts about reverse mortgage protections
| Fact | What it means for you | Source |
|---|---|---|
| Statutory negative equity protection | Applies to reverse mortgage contracts entered on or after 18 September 2012. The amount owed can’t exceed the property’s market value. | ASIC Report 586: Review of reverse mortgage lending in Australia (2018) |
| Loans before 18 September 2012 | Protection depends on the contract. Check it, or ask the lender in writing. | ASIC Report 586: Review of reverse mortgage lending in Australia (2018) |
| What it doesn’t protect | Your remaining equity and what you leave to family. Compound interest can use up a large share of it. | ASIC Report 586: Review of reverse mortgage lending in Australia (2018) |
| Moneysmart projections (s133DB) | Before assessing whether a reverse mortgage is unsuitable, the lender or credit representative must show you projections made with ASIC’s Moneysmart reverse mortgage calculator and give you a printed copy. | National Consumer Credit Protection Act 2009, section 133DB |
| Reverse mortgage information statement | A prescribed statement you must be given at the same time, explaining how reverse mortgages work and what to ask. | National Consumer Credit Protection Act 2009, section 133DB |
| Repayment | No regular repayments required; the loan is repaid when you sell, move into care or pass away. | ASIC Moneysmart reverse mortgage calculator |
What negative equity protection covers
Negative equity protection means that when the loan is repaid, you or your estate won’t be asked for more than the home is worth. For reverse mortgages entered on or after 18 September 2012, this protection is set by law rather than left to the lender’s contract.
If your loan started before that date, the protection depends on the contract terms. Ask the lender to confirm in writing whether your loan has a negative equity guarantee.
What it doesn’t protect
The protection stops the debt going past the home’s value. It does not stop the debt growing until it uses up most or all of your equity. ASIC’s 2018 review found that many borrowers had not considered how compound interest would reduce their equity over time.
That has two practical effects: less money for you later if you need to move into care, and less left to family. Lender conditions also still apply, such as keeping the home insured and maintained and telling the lender if someone else moves in. Breaching them can lead to the loan becoming repayable.
The Moneysmart projections and information statement
Under section 133DB of the National Consumer Credit Protection Act 2009, a lender or credit representative must, before assessing whether a reverse mortgage is unsuitable for you, show you projections of your loan made with ASIC’s Moneysmart reverse mortgage calculator, in person. You must be given a printed copy of those projections and the reverse mortgage information statement.
The projections show how the loan balance and your remaining equity could change over time under different house price and interest scenarios. Use them with family, and ask for projections at the amount and timing you actually plan to draw.
Frequently asked questions
- Home Equity Access Scheme vs reverse mortgage: which suits you?
- Paying a RAD for aged care: sell, rent or borrow against the family home?
General information only. It does not take your objectives, financial situation or needs into account and is not financial product, tax or legal advice. Lending criteria, fees and charges apply. Super, Centrelink and aged-care fee advice is referred to a licensed financial adviser.
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