Can I get a reverse mortgage if I still have a mortgage?

How much does an existing mortgage reduce what you can borrow?

Dollar for dollar. The existing debt comes out of the maximum amount you can borrow.

The maximum depends mostly on your age and the value of your home. Moneysmart says that at 60, the most you can borrow is likely to be 15 to 20% of your home's value, adding about 1% for each year over 60, so roughly 20 to 25% at 65. The minimum you can borrow is typically about $10,000. (Moneysmart)

So the question isn't just whether you have a mortgage, but whether it is small enough to fit inside the amount a reverse mortgage would allow at your age.

For example, using Moneysmart's guide, someone aged 65 with a home worth $600,000 might be able to borrow up to roughly 20 to 25%, which is about $120,000 to $150,000. If they still owe $50,000 on their home loan, that would be paid out first, leaving a smaller amount to draw on. If they owe $200,000, a reverse mortgage on its own probably won't cover it. These numbers are illustrative only; each lender sets its own limits.

See How much can I borrow at my age?

Why would someone replace a home loan with a reverse mortgage?

The usual reason is cash flow. A normal home loan needs regular repayments. A reverse mortgage generally doesn't need repayments while you live in the home; interest is added to the loan instead.

For someone on a pension who is struggling with repayments, that can ease the pressure. It can also mean they don't have to sell a home they want to stay in.

But there is a trade-off. The interest that used to be paid each month is now added to the loan and compounds. Moneysmart notes the interest rate on a reverse mortgage is likely to be higher than on a standard home loan. Over time, the debt grows rather than shrinks, and your equity reduces. See How much does a reverse mortgage cost? and How does interest work on a reverse mortgage?

What do lenders look at if you still have a mortgage?

On top of the normal eligibility checks, expect a lender to look at:

• your age, and your partner's age if you are both borrowing. Moneysmart describes home equity release as an option if you're 60 or older; minimum ages vary by lender.
• the value of your home, usually through a valuation
• how much you still owe, including any other loans secured on the home
• the type and location of the property, since some lenders don't accept certain property types or postcodes. See Which property types and postcodes do lenders accept?
• your plans and future needs, such as aged care, and who else lives in the home

For the full list, see Can I actually qualify for a reverse mortgage?

What if the reverse mortgage isn't enough to pay off the existing loan?

If your existing debt is bigger than the most you can borrow, the reverse mortgage on its own won't clear it. Options people sometimes look at include:

• paying part of the loan down first, for example from savings or super
• waiting, since the amount available generally increases with age
• refinancing to a different standard home loan, if repayments are affordable
• downsizing to a less expensive home
• the government's Home Equity Access Scheme, which has its own rules and limits

Each has costs and effects on your pension, estate and housing. See Should I take a cash-out refinance or a reverse mortgage?

Can you refinance a reverse mortgage you already have?

That's a different question, but it comes up a lot. It is sometimes possible to move an existing reverse mortgage to another lender, or to replace it with a standard loan if you can afford repayments. The new lender assesses you from scratch, and costs apply to break one loan and set up another. Two of our stories cover this: We've had this reverse mortgage for years. Can we refinance it? and Dad's reverse mortgage rate kept going up.

What protections apply?

The same protections apply as for any Australian reverse mortgage:

• Projections before you apply. Your lender or broker must show you projections, using the reverse mortgage calculator on ASIC's Moneysmart website, of how the loan and your equity could change over time, give you a printed copy, and give you a reverse mortgage information statement. (NCCP Act s133DB)
• Negative equity protection. For reverse mortgages taken out from 18 September 2012, you can't end up owing the lender more than your home is worth. See Can I end up owing more than my home is worth?

Moneysmart also recommends getting independent advice from a financial adviser or legal professional, and asking the Services Australia Financial Information Service how it could affect your pension.

Frequently asked questions

Do I have to own my home outright to get a reverse mortgage?

No, not always. But any existing loan generally has to be paid out, usually from the reverse mortgage, and the remaining amount must be within what the lender will lend.

Can I keep my current home loan and add a reverse mortgage?

Generally not. Lenders usually require the reverse mortgage to be the only loan secured on the home.

Will I still have repayments after switching?

You generally won't have compulsory repayments while you live in the home, but interest is added to the loan and compounds. You may be able to make voluntary repayments.

Is there a minimum age?

Moneysmart describes home equity release as an option if you're 60 or older. Lenders set their own minimum ages and limits.

Talk it through

If you still have a home loan and want to know whether a reverse mortgage could work, a Fundd broker can look at the numbers with you, with no obligation. A broker may tell you a reverse mortgage isn't right for you. Call 1300 038 633 or speak to a broker. Read how we make money.