Reverse mortgages in Queensland: the risks, the fine print and the better options

What a reverse mortgage actually is

A reverse mortgage is a loan secured by a registered mortgage over your home, usually available from age 60, with no repayments required while you live there. Interest is added to the balance each month and then attracts interest itself. The debt is repaid when the property is sold, when you move permanently into aged care, or when you die.

How much you can borrow is driven by your age — commonly around 15% to 20% of the value at 60, increasing by roughly 1% for each year older. The money can be taken as a lump sum, a regular income stream, a line of credit drawn as needed, or a combination.

The single most important feature is compounding. There are no repayments, so nothing is holding the balance down. At a typical reverse mortgage rate — historically two or more percentage points above a standard home loan — the debt roughly doubles every eight to ten years. A $150,000 draw at 60 can be $600,000 by 85.

Why we are seeing more of them

Three pressures have converged on the same generation. Retirement savings are being asked to last longer as life expectancy rises. The cost of simply holding a home — council rates, water, insurance premiums that have risen sharply in coastal Queensland, energy and maintenance — has outpaced pension indexation. And a large share of Queensland retirees are asset rich and income poor: they own a home worth a great deal and live on very little.

The Australian Government's own Home Equity Access Scheme sits in this space too, and lenders have moved back into it. That is not a reason to avoid the product. It is a reason to read the contract as carefully as you would a contract of sale.

The protections the law gives you

Reverse mortgages regulated by the National Credit Code carry protections that were introduced precisely because earlier products caused real harm.

• No negative equity guarantee. You cannot be required to repay more than the net sale proceeds of the property. The lender wears the shortfall, and it cannot chase your estate or your children for it.
• Mandatory projections. Before entering the loan the lender must show you, and discuss with you, projections of the debt and your remaining equity over time at different property growth rates. Ask for the worst-case projection, not the middle one.
• Responsible lending obligations. The lender must make reasonable enquiries and must not offer a loan that is unsuitable for you.
• Tenure protections. Reputable contracts allow you to remain in the home for life, and to move once to another property with the loan going with you. Confirm this is in the contract — it is not automatic.

The risks that actually bite

The no negative equity guarantee protects the lender's recovery, not your plans. These are the problems we see in practice:

• The equity disappears. Compounding quietly consumes the asset you intended to fund aged care, or to leave behind. The guarantee means you owe nothing more — it does not mean anything is left.
• There is no money left for a RAD. If you later need residential aged care, the refundable accommodation deposit typically comes from the sale of the home. If the reverse mortgage has eaten the proceeds, your care options narrow to what the pension will support.
• Pension and means testing consequences. A lump sum that sits in the bank or is gifted to a child is an assessable asset, and gifting rules apply for five years. People have reduced their own age pension by drawing equity and giving it away.
• Default by neglect. You must keep the property insured, rated, and in reasonable repair, and it must remain your principal residence. Letting insurance lapse, or moving out to live with family without telling the lender, can be a default even though no repayment was missed.
• Family conflict later. Children who expected to inherit an unencumbered home often find out only after death. That is where estate disputes start.
• Money going somewhere else. A worrying number of drawdowns are made to help an adult child buy a house or prop up a business. If that is the plan, it needs to be documented as a loan secured properly, not handed over.

What to look for in the contract

Bring the loan documents to us before you sign, not after. The provisions that matter are rarely on the front page.

• The interest rate, whether it is variable, and how far the lender can move it
• All fees: establishment, monthly service, valuation, legal, discharge and any early repayment or break cost
• Whether the no negative equity guarantee is stated in the contract itself and whether anything voids it
• Occupancy conditions — how long you can be absent before the loan becomes repayable, and what happens if you go into respite or hospital
• Whether a spouse, partner or resident family member is named as a protected occupant who can remain after your death
• Whether you can port the loan to another home if you downsize
• Repair, insurance and rates obligations, and what counts as default
• Whether you can make voluntary repayments to slow the compounding, and at what cost

Alternatives worth pricing first

A reverse mortgage should be the option you choose after the others have been ruled out, not the first call.

• The Home Equity Access Scheme. The Commonwealth scheme lends against your home as a fortnightly income stream at a rate well below commercial reverse mortgages, with a no negative equity guarantee. For an income shortfall rather than a lump sum, it is usually the cheapest option available.
• Downsizing. Selling and buying something smaller releases equity outright with no interest at all, and downsizer superannuation contributions may be available. The costs are transfer duty, agent commission and the emotional weight of leaving — real, but finite.
• Home equity release or shared appreciation products, where an investor takes a share of the future sale price rather than charging interest. Different risk, not necessarily better, and the maths needs to be run.
• A family loan, properly documented and secured by a registered mortgage. Cheaper than any lender, and — done correctly — it protects the child's money from their own relationship breakdown and from an estate dispute later.
• State government concessions, rates deferral for pensioners, and a full review of entitlements. Sometimes the shortfall is smaller than the household thinks.
• Selling to fund entry to a retirement village or land lease community, where the ongoing cost profile is different and the exit fees need to be understood before you commit.

What happens when you sell

A property with a reverse mortgage over it can be sold like any other, but the sale has to be managed around the lender. The mortgage must be discharged at settlement, and the payout figure is not something you can estimate from your last statement — it includes interest accrued to the settlement date and a discharge fee, and there may be a break cost on a fixed rate.

We obtain the formal payout figure before the contract is signed, not after, and check the title for anything else registered against it. Then we build the settlement statement: sale price, less agent commission, less the payout, less rates and water adjustments and legal costs. That is the number that tells you whether the next home is affordable.

If you are porting the loan to a new property rather than repaying it, the lender must approve the new security before you commit to buying. Signing a purchase contract on the assumption the lender will agree is how people end up in default on both transactions.

What happens when the owner dies

The debt does not die with the borrower. It becomes a liability of the estate, secured over the house, and interest keeps compounding until it is repaid.

The executor generally has a limited window — commonly six to twelve months under the contract — to repay the loan or sell the property. That window runs while probate is being obtained, and probate on a Queensland estate routinely takes two to four months from the date of death before the executor can even deal with the title.

If a surviving spouse or partner is a named borrower or a protected occupant, they can usually stay. If they are not named — a second marriage, a partner who moved in later — they may have no right to remain at all. This is the single most common and most painful surprise in this area, and it is entirely avoidable at the time the loan is taken out.

Where the debt exceeds the value, the no negative equity guarantee applies and the shortfall is not recoverable from the estate or from the beneficiaries. Where a will left the house to one child and the residue to another, a reverse mortgage can quietly reverse who inherits what. Any will made before the loan should be reviewed after it.

• Notify the lender of the death promptly and ask for the contractual repayment window in writing
• Obtain probate without delay — interest is running the whole time
• Get a payout figure and a market appraisal early so the executor can decide between sale and repayment
• Check the will still distributes the estate the way the deceased intended once the debt is deducted

How we help

We are not financial advisers and we do not sell these products. What we do is read the contract you are being asked to sign, tell you in plain terms what it will cost you over the period you are likely to live in the house, and identify the clauses that will matter to your family later.

For anyone considering a reverse mortgage we review the loan documents and the projections, check the occupancy and portability terms, confirm the protections for a spouse or resident family member, and coordinate with your accountant or financial adviser on the Centrelink and aged care consequences. Where the money is going to a child, we document it properly.

For a sale, we obtain the payout figure before you sign, manage the discharge and give you a settlement statement you can plan around. For an executor, we handle the grant of probate, the lender and the sale together so the clock does not run away. And in every case we look at the will and the enduring power of attorney at the same time, because a reverse mortgage changes both.

Reverse mortgages in Queensland — common questions