How Does Interest Work on a Reverse Mortgage?

Quick Answer

Reverse mortgage interest is generally calculated on the amount you've borrowed and added to your loan balance over time. Because regular repayments are usually not required while you continue to meet the loan conditions, the loan balance can gradually increase as interest accrues.

Unlike a traditional home loan, where monthly repayments reduce both the loan and the interest charged, a reverse mortgage works differently. If you don't make voluntary repayments, the interest is typically added to the outstanding balance, and future interest is then calculated on the new balance.

For example, if you borrow $100,000, interest is generally charged on that amount from the time the funds are advanced. As interest is added, your loan balance increases unless you choose to make voluntary repayments (if your loan allows them).

The interest rate itself depends on the lender and the product you choose. Some reverse mortgages have variable interest rates, while others may offer fixed-rate options for all or part of the loan.

Although the loan balance may increase over time, Australian reverse mortgages include important consumer protections, including the No Negative Equity Guarantee, which helps ensure you won't owe more than the value of your home when it's sold, provided the loan conditions have been met.

Key takeaway: Reverse mortgage interest is generally charged on the amount you've borrowed and added to your loan balance over time. If you don't make voluntary repayments, the balance can increase as interest continues to accrue.

How Does Reverse Mortgage Interest Work?

The way interest works on a reverse mortgage is one of the biggest differences between it and a traditional home loan.

With a standard mortgage, you usually make regular repayments that reduce the amount you owe. As your loan balance falls, the amount of interest charged also reduces over time.

A reverse mortgage generally works differently.

Instead of making required monthly repayments, interest is usually added to your outstanding loan balance. This means the amount you owe can gradually increase over the life of the loan unless you choose to make voluntary repayments.

For many retirees, this is one of the key benefits of a reverse mortgage. Rather than using their retirement income to make ongoing loan repayments, they can remain in their home without the pressure of meeting regular repayment obligations, provided they continue to meet the loan conditions.

What Does This Mean in Practice?

Imagine you borrow $150,000 through a reverse mortgage.

If you don't make voluntary repayments, interest is generally added to the loan balance at regular intervals.

Over time:

• The original amount borrowed remains outstanding.


• Interest is added to the balance.


• The total loan gradually increases over time.

This is expected and is one of the fundamental features of a reverse mortgage.

Is Interest Added Even If I Don't Receive a Lump Sum?

It depends on how you access your funds.

If you receive your reverse mortgage as a lump sum, interest generally starts accruing on that amount once it has been advanced.

If your reverse mortgage allows you to receive funds through regular payments or a line of credit, interest is generally only charged on the amount you've actually accessed, not the total amount that may be available to you.

The available payment options vary between lenders and products.

Does the Interest Ever Need to Be Paid?

In most cases, you aren't required to make regular interest repayments while you continue to meet the terms of the reverse mortgage.

Instead, the accumulated loan balance—including both the amount you've borrowed and the interest that has accrued—is usually repaid when the loan ends. This commonly occurs when the home is sold, the last borrower permanently leaves the property, or another event specified in the loan agreement occurs.

We'll explain what happens when the loan ends in more detail later in this guide.

Key takeaway: Reverse mortgage interest is generally added to your outstanding loan balance rather than being paid each month. As a result, the loan balance can increase over time, although regular repayments are usually not required while you continue to meet the loan conditions.

When Does Interest Start?

Interest doesn't begin simply because you're approved for a reverse mortgage. It generally starts when you receive the funds.

The exact timing depends on how you choose to access your reverse mortgage.

If You Take a Lump Sum

If you receive your funds as a lump sum, interest will generally begin accruing from the date that money is advanced to you.

For example, if you settle your reverse mortgage and receive $100,000, interest is typically calculated on that $100,000 from that point onwards.

If You Receive Regular Payments

Some reverse mortgages allow you to receive regular payments instead of one large lump sum.

In this situation, interest generally only begins accruing on each payment after it has been made.

For example, if you receive monthly payments, interest is usually charged on each payment from the time it is advanced, rather than on future payments you haven't yet received.

If You Have a Line of Credit

Some reverse mortgage products include a line of credit that allows you to access funds when you need them.

With these products, interest is generally only charged on the amount you've actually drawn.

For example:

• Your approved reverse mortgage facility is $300,000.


• You initially draw $50,000.


• Interest generally accrues on the $50,000, not the unused $250,000.

If you later draw an additional $30,000, interest will then begin accruing on that amount from the date it is accessed.

What If I Never Use All of My Available Funds?

If your reverse mortgage includes an available line of credit or future drawdown facility, you won't usually pay interest on funds that remain unused.

This is one reason some retirees choose not to borrow the maximum amount upfront. By only accessing funds as they're needed, they may reduce the amount of interest that accrues over time.

The availability of line of credit facilities and future drawdowns varies between lenders and products.

Key takeaway: Reverse mortgage interest generally begins when funds are advanced to you—not when you're approved for the loan. If your product offers regular payments or a line of credit, interest is typically only charged on the amounts you've actually received or drawn.

How Is Interest Calculated?

Reverse mortgage interest is generally calculated daily and charged to your loan balance at regular intervals, although the exact method depends on your lender and the terms of your loan.

Unlike a traditional home loan, where you're usually paying the interest as it accrues, a reverse mortgage typically adds the interest to your outstanding loan balance. This means you don't usually receive an interest bill or need to make monthly interest payments while you continue to meet the loan conditions.

Is Interest Calculated Daily?

In many cases, yes.

Most reverse mortgage lenders calculate interest on the outstanding loan balance each day using the applicable annual interest rate.

Although the calculation is often performed daily, the interest isn't usually added to your loan balance every day. Instead, it's typically charged at regular intervals, such as monthly.

What Balance Is Interest Calculated On?

Interest is generally calculated on the amount you currently owe.

This includes:

• The original amount you've borrowed.


• Any additional funds you've drawn later.


• Interest that has previously been added to the loan balance.

This is why the total amount owing can increase over time if no voluntary repayments are made. We'll explain how this process works in the next section on compound interest.

Does the Interest Rate Stay the Same?

That depends on your loan.

Some reverse mortgages have a variable interest rate, meaning the rate can rise or fall over time.

Others may offer a fixed interest rate, which remains the same for an agreed period or, in some cases, for the life of the loan.

The type of interest rate available depends on the lender and the reverse mortgage product you choose.

How Can I Find My Interest Rate?

Your reverse mortgage documents will set out:

• The interest rate that applies to your loan.


• Whether the rate is fixed or variable.


• How and when interest is calculated.


• When interest is added to your loan balance.

It's important to read these documents carefully so you understand exactly how your loan operates.

Key takeaway: Reverse mortgage interest is generally calculated daily on your outstanding loan balance and added at regular intervals, such as monthly. Whether the interest rate is fixed or variable depends on the lender and the product you've chosen.

What Is the Current Interest Rate on Reverse Mortgages?

There isn't a single interest rate that applies to every reverse mortgage.

Like other types of home loans, interest rates vary between lenders and products, and they can change over time. The rate you're offered will depend on the reverse mortgage product you choose and the lender's current pricing.

For this reason, it's important to look at the overall features of a reverse mortgage rather than focusing solely on the advertised interest rate.

Are Reverse Mortgage Interest Rates Higher Than Standard Home Loans?

They often are.

Reverse mortgages are a specialised lending product with features that differ significantly from a traditional home loan. For example:

• Regular repayments are generally not required while you continue to meet the loan conditions.


• The loan may remain in place for many years before it's repaid.


• Lenders provide additional consumer protections, including the No Negative Equity Guarantee.

These differences mean reverse mortgage interest rates are often higher than those available on standard owner-occupied home loans.

Are Interest Rates Fixed or Variable?

This depends on the lender and the product.

Some reverse mortgages offer:

• Variable interest rates, which may increase or decrease over time.


• Fixed interest rates, where the rate remains unchanged for an agreed period or under the terms of the product.

Some lenders may offer both options, while others may only offer one.

Can Interest Rates Change?

If you have a variable-rate reverse mortgage, the interest rate can change during the life of the loan.

This means the amount of interest added to your loan balance may increase if rates rise or decrease if rates fall.

If you have a fixed-rate reverse mortgage, the interest rate will generally remain unchanged for the applicable fixed period.

Should I Choose the Lowest Interest Rate?

The interest rate is important, but it shouldn't be the only factor you consider.

You may also want to compare:

• Available payment options.


• Whether voluntary repayments are allowed.


• Access to future drawdowns or a line of credit.


• Fees and charges.


• Loan flexibility.


• Customer service and support.

Choosing the most suitable reverse mortgage often involves balancing these features rather than selecting the lowest advertised interest rate alone.

Key takeaway: Reverse mortgage interest rates vary between lenders and products. While they're often higher than standard home loan rates because of the unique features of reverse mortgages, it's important to compare the overall loan features rather than focusing on the interest rate in isolation.

What Is Compound Interest?

One of the most important concepts to understand with a reverse mortgage is compound interest.

Compound interest simply means that interest is charged not only on the amount you've borrowed, but also on the interest that has already been added to your loan balance.

This is the main reason a reverse mortgage balance can grow over time if no voluntary repayments are made.

How Does Compound Interest Work?

Let's look at a simplified example.

Suppose you borrow $100,000.

During the first year, interest is added to your loan balance.

Instead of continuing to calculate interest only on the original $100,000, future interest is generally calculated on the new, larger balance.

This means:

• You borrow $100,000.


• Interest is added to the loan.


• Your loan balance increases.


• Future interest is calculated on the increased balance.

Over many years, this compounding effect means the loan balance can grow faster than it would if interest were only charged on the original amount borrowed.

Why Does This Matter?

Compound interest is a normal feature of most reverse mortgages.

It allows borrowers to remain in their home without making regular repayments, but it also means the amount owing will generally increase over time unless voluntary repayments are made.

The longer the reverse mortgage remains in place, the greater the effect compound interest is likely to have on the outstanding loan balance.

Can You Reduce the Effect of Compound Interest?

In many cases, yes.

Depending on your reverse mortgage product, you may be able to reduce the long-term effect of compound interest by:

• Borrowing only the amount you currently need.


• Accessing additional funds gradually rather than all at once.


• Making voluntary repayments if your loan allows them.


• Reviewing your borrowing needs as your circumstances change.

Even relatively small voluntary repayments may reduce the amount on which future interest is calculated.

Is Compound Interest a Bad Thing?

Not necessarily.

Compound interest is simply the way reverse mortgages are designed to operate when regular repayments aren't required.

For many retirees, the ability to access their home's equity without making ongoing loan repayments outweighs the long-term growth in the loan balance.

The key is understanding how compound interest works before taking out a reverse mortgage, so you can make an informed decision about how much to borrow and when to access your home's equity.

Key takeaway: Compound interest means future interest is generally charged on both the amount you've borrowed and the interest already added to your loan balance. While this causes the loan to grow over time, understanding how compounding works can help you make more informed borrowing decisions.

Can You Reduce the Interest on a Reverse Mortgage?

While interest is a normal part of any reverse mortgage, there are several ways you may be able to reduce the amount of interest that accrues over the life of the loan.

The most effective approach depends on your financial goals, how much equity you need to access and the features of your reverse mortgage product.

Borrow Only What You Need

One of the simplest ways to reduce future interest is to avoid borrowing more than you currently require.

Because interest is generally only charged on the amount you've actually borrowed, taking a smaller initial loan means there is less money attracting interest from the outset.

Many retirees choose to access enough equity to meet their immediate needs while leaving the remaining equity untouched for the future.

Access Funds Gradually

Some reverse mortgage products allow you to receive funds progressively through regular payments or a line of credit.

If this option is available, interest generally only accrues on the funds you've actually accessed, rather than the total amount that may be available under your approved borrowing limit.

For retirees who don't need all of the funds immediately, this approach may reduce the total interest paid over time.

Make Voluntary Repayments

Although regular repayments are generally not required, many reverse mortgages allow borrowers to make voluntary repayments.

By reducing your outstanding loan balance, voluntary repayments can also reduce the amount on which future interest is calculated.

Before making repayments, it's worth checking whether your lender has any conditions or limits on voluntary repayments.

Review Your Borrowing Needs Regularly

Your financial needs may change throughout retirement.

If you've established a facility that allows future drawdowns, it can be worthwhile reviewing how much you actually need before accessing additional funds.

Borrowing only when necessary may help keep your loan balance lower than it would be if you accessed the full amount upfront.

Compare Loan Features, Not Just Interest Rates

A lower interest rate isn't always the only way to reduce the long-term cost of a reverse mortgage.

Features such as:

• The ability to make voluntary repayments.


• Flexible drawdown options.


• Access to a line of credit.


• Low or no ongoing fees.

may all influence the total cost of the loan over time.

Choosing a reverse mortgage that suits your needs can be just as important as comparing interest rates.

Key takeaway: While interest can't be avoided altogether, borrowing only what you need, accessing funds gradually and making voluntary repayments where permitted may help reduce the amount of interest that accrues over the life of your reverse mortgage.

Can You Choose a Fixed or Variable Interest Rate?

This depends on the reverse mortgage product you choose.

Some reverse mortgages offer a variable interest rate, while others may offer a fixed interest rate. Not every lender provides both options, so the choices available will vary.

Understanding the difference can help you decide which option best suits your circumstances.

Variable Interest Rates

A variable interest rate can increase or decrease over the life of your reverse mortgage.

If interest rates fall, the amount of interest added to your loan may decrease. If rates rise, the amount of interest charged may increase.

Because reverse mortgages often remain in place for many years, it's important to understand that a variable rate may change multiple times during the life of the loan.

Fixed Interest Rates

A fixed interest rate remains the same for the period covered by your loan agreement.

This provides certainty about how interest will be calculated during that period, regardless of changes in market interest rates.

Depending on the lender and product, fixed-rate options may not always be available, or they may be offered under different terms than variable-rate products.

Which Is Better?

There isn't a single answer.

A fixed interest rate offers greater certainty because the rate doesn't change during the applicable fixed period.

A variable interest rate, on the other hand, may rise or fall over time in line with market conditions.

The most suitable option depends on factors such as:

• How long you expect to keep the reverse mortgage.


• Your preference for certainty or flexibility.


• The interest rates and features available when you apply.


• The lender's product options.

Should You Choose Based on Interest Rate Alone?

Probably not.

The interest rate is an important consideration, but it's only one part of a reverse mortgage.

It's also worth comparing features such as:

• Whether you can make voluntary repayments.


• Available payment options, such as lump sums or a line of credit.


• Access to future drawdowns.


• Fees and charges.


• Overall loan flexibility.

A reverse mortgage with features that better suit your needs may provide greater long-term value than simply choosing the product with the lowest advertised interest rate.

Key takeaway: Some reverse mortgages offer fixed interest rates, while others use variable rates. The right option depends on your personal circumstances, your preference for certainty or flexibility, and the overall features of the reverse mortgage—not just the interest rate itself.

Does Interest Stop If I Move Out?

Eventually, yes—but not immediately.

A reverse mortgage is generally designed to continue while the property remains your principal place of residence and you continue to meet the loan conditions.

If you permanently move out of your home, the reverse mortgage will usually become repayable. However, interest generally continues to accrue until the loan is repaid in full.

What Happens If I Move Into Residential Aged Care?

For many borrowers, moving permanently into residential aged care is one of the events that brings the reverse mortgage to an end.

Once this happens, the loan will generally need to be repaid according to the terms of your loan agreement.

This is often done by selling the property, although other repayment options may be available depending on your circumstances.

What If I Move in With Family?

If you permanently leave your home to live with family or elsewhere, the reverse mortgage will generally become repayable in the same way.

The key factor is usually whether the property is still your principal place of residence, rather than where you've moved.

Does Interest Stop as Soon as I Leave?

Not usually.

Once the loan becomes repayable, there is generally a period of time for the loan to be settled.

During this period, interest will typically continue to accrue until the outstanding balance has been repaid.

For example, if the property is being prepared for sale, interest will generally continue to be added until settlement occurs and the lender receives repayment.

What If I Die?

If you are the sole borrower, the reverse mortgage will generally become repayable after your death.

If there is more than one borrower, the loan will usually continue until the last surviving borrower permanently leaves the home or passes away, provided the loan conditions continue to be met.

Once the loan becomes repayable, your estate or beneficiaries will generally have time to arrange repayment, which is often achieved through the sale of the property.

Will I Be Forced to Leave My Home?

One of the most common misconceptions about reverse mortgages is that lenders can ask you to leave simply because the loan balance has increased.

Generally, this isn't how reverse mortgages work.

As long as you continue to meet the terms of your loan—such as living in the home as your principal place of residence and meeting your ongoing obligations—you can generally remain in your home without being required to repay the loan because of its growing balance alone.

Key takeaway: A reverse mortgage generally becomes repayable when you permanently leave your home or the last borrower passes away. Interest will usually continue to accrue until the loan is repaid, but simply owing more over time doesn't normally require you to move out or repay the loan early.

What Happens If the Interest Eventually Equals My Home's Value?

For many retirees, this is one of the biggest concerns about reverse mortgages.

It's understandable to wonder whether the loan could keep growing until it exceeds the value of your home, leaving you or your family with a debt they can't repay.

In Australia, reverse mortgages include important consumer protections to address this concern.

What Is the No Negative Equity Guarantee?

Since September 2012, reverse mortgages regulated under the National Consumer Credit Protection Act have included a No Negative Equity Guarantee.

This means that, provided you have met the terms and conditions of your loan, you (or your estate) won't be required to repay more than the market value of your home when it is sold.

If the outstanding loan balance is greater than the amount realised from the sale of the property, neither you nor your estate is generally required to pay the shortfall.

Can My Loan Balance Become Greater Than My Home's Value?

It's possible for the outstanding loan balance to eventually exceed the property's value, particularly if:

• The reverse mortgage has been in place for many years.


• A large amount was borrowed.


• Interest has accrued over a long period.


• Property values have grown more slowly than expected.

However, the No Negative Equity Guarantee is designed to protect borrowers and their estates from having to repay any amount above the property's sale value.

What Does This Mean for My Family?

When the reverse mortgage ends, your beneficiaries generally have two options:

• Sell the property and use the sale proceeds to repay the loan.


• Repay the loan from other funds if they wish to keep the property, subject to the lender's requirements.

If the sale proceeds are less than the outstanding loan balance, the No Negative Equity Guarantee generally means your beneficiaries won't have to make up the difference from their own money, provided the loan conditions have been met.

Does This Mean My Estate Will Always Receive Nothing?

No.

Many reverse mortgages are repaid well before the loan balance approaches the property's value.

In many cases:

• The property increases in value over time.


• Only a portion of the home's equity was borrowed.


• The remaining equity passes to the borrower's estate after the loan has been repaid.

How much equity remains depends on factors such as the amount borrowed, how long the loan has been in place, the interest charged and changes in the property's value over time.

Does the Guarantee Mean I Can Borrow More?

No.

The No Negative Equity Guarantee is a consumer protection, not a borrowing benefit.

Lenders still apply borrowing limits based on your age, your property's value and their lending policies. The guarantee simply provides protection if, in the future, the loan balance exceeds the value of the property.

Key takeaway: Australian reverse mortgages include a No Negative Equity Guarantee, meaning that provided the loan conditions have been met, you or your estate won't generally have to repay more than the value of your home when it is sold—even if the outstanding loan balance is higher.

Common Misunderstandings About Reverse Mortgage Interest

Reverse mortgage interest is often misunderstood, which can make these loans seem more complicated than they really are. Here are some of the most common misconceptions—and the facts behind them.

"I'll Have to Make Monthly Interest Repayments"

This is one of the biggest myths.

Most reverse mortgages don't require regular repayments while you continue to meet the loan conditions. Instead, interest is generally added to your loan balance over time.

Many borrowers choose not to make repayments during retirement, although voluntary repayments may be available depending on the product.

"Interest Starts Before I Receive Any Money"

Generally, no.

Interest usually begins when funds are advanced to you—not when you enquire about a reverse mortgage or when your application is approved.

If your reverse mortgage includes a line of credit or progressive drawdowns, interest is typically only charged on the amount you've actually accessed.

"The Bank Owns My Home"

No.

A reverse mortgage is a loan secured against your property. You remain the owner of your home and continue to benefit from any increase in its value, subject to the lender's security interest.

As with a traditional mortgage, the lender doesn't become the owner simply because they have provided the loan.

"I'll Lose My Home When the Loan Balance Gets Too High"

Not simply because the balance has increased.

Provided you continue to meet the terms of your reverse mortgage—such as living in the property as your principal place of residence and meeting your ongoing obligations—you can generally remain in your home regardless of how much the loan balance has grown.

The loan usually becomes repayable only when a specified event occurs, such as the last borrower permanently leaving the home or passing away.

"Interest Is Charged on Money I Haven't Borrowed"

Not usually.

If your reverse mortgage allows future drawdowns or includes a line of credit, interest is generally only charged on the funds you've actually received.

Unused borrowing capacity doesn't usually attract interest until it is accessed.

"All Reverse Mortgages Charge Interest the Same Way"

No.

Although the basic principles are similar, lenders may differ in areas such as:

• Whether the interest rate is fixed or variable.


• How interest is charged.


• Available payment options.


• Voluntary repayment features.


• Access to future drawdowns.

This is why it's important to understand the terms of the specific reverse mortgage you're considering rather than assuming every product works identically.

"A Higher Interest Rate Always Means a Worse Reverse Mortgage"

Not necessarily.

The interest rate is an important consideration, but it's only one part of the overall loan.

Features such as flexible drawdown options, voluntary repayments, lower fees or better customer support may also influence which reverse mortgage is most suitable for your circumstances.

Comparing the entire product—not just the interest rate—can help you make a more informed decision.

Key takeaway: Many concerns about reverse mortgage interest stem from common misconceptions. Understanding when interest starts, how it's calculated and the protections available can make it much easier to compare products and decide whether a reverse mortgage is right for you.

Frequently Asked Questions

What interest rate do reverse mortgages charge?

There isn't a standard interest rate for all reverse mortgages. Rates vary between lenders and products and may be fixed or variable. Before taking out a reverse mortgage, it's important to understand how the interest rate works and whether it can change over time.

Is reverse mortgage interest higher than a normal home loan?

Reverse mortgage interest rates are often higher than those for standard owner-occupied home loans. This reflects the different way reverse mortgages operate, including the fact that regular repayments are generally not required and the loan may remain in place for many years.

Is reverse mortgage interest fixed or variable?

It depends on the product. Some reverse mortgages have variable interest rates, while others offer fixed-rate options. Not every lender provides both, so the available choices vary.

Can the interest rate change after I take out the loan?

If your reverse mortgage has a variable interest rate, the rate may increase or decrease over time. If you have a fixed-rate loan, the rate will generally remain the same for the applicable fixed period.

Is interest calculated daily?

In many cases, yes. Reverse mortgage interest is commonly calculated on the outstanding loan balance each day and added to the loan at regular intervals, such as monthly. The exact method is set out in your loan agreement.

Do I have to pay the interest every month?

Generally, no. Most reverse mortgages don't require monthly interest repayments while you continue to meet the loan conditions. Instead, the interest is usually added to your loan balance.

Can I make repayments if I want to?

Often, yes. Many reverse mortgage products allow voluntary repayments, although the rules vary between lenders. Making voluntary repayments may reduce the outstanding balance and the amount of future interest that accrues.

Can I repay the entire loan early?

In many cases, yes. However, depending on your loan, early repayment fees or other conditions may apply. It's important to understand these before deciding to repay the loan early.

Does interest continue if I don't use all of my approved borrowing?

Not usually. If your reverse mortgage includes a line of credit or future drawdown facility, interest generally only accrues on the amount you've actually accessed, not on the unused portion of your approved borrowing limit.

Does interest stop when I sell my home?

Interest generally continues to accrue until the reverse mortgage has been repaid in full. This is often done using the proceeds from the sale of the property.

Does interest continue after I die?

If you're the sole borrower, interest will generally continue to accrue until the loan is repaid by your estate. If there are joint borrowers, the reverse mortgage will usually continue until the last surviving borrower permanently leaves the home or passes away.

Why does the loan balance grow so quickly over time?

The balance may grow because interest is generally added to the outstanding loan rather than paid each month. Over many years, compound interest can cause the loan balance to increase significantly.

Can I avoid compound interest?

Not entirely. Compound interest is a normal feature of reverse mortgages where interest is added to the outstanding balance. However, borrowing only what you need and making voluntary repayments where permitted may reduce its long-term effect.

Will rising interest rates increase what I owe?

If your reverse mortgage has a variable interest rate, higher interest rates may increase the amount of interest added to your loan balance over time. Fixed-rate loans generally aren't affected by changes in market interest rates during the fixed period.

Do all reverse mortgage lenders charge the same interest rate?

No. Interest rates, fees, product features and repayment options vary between lenders, so it's worth comparing more than just the advertised interest rate.

Is reverse mortgage interest tax deductible?

For most people using a reverse mortgage over their principal place of residence, the interest isn't generally tax deductible. Tax outcomes depend on your individual circumstances, so you should seek professional tax advice if this is relevant to your situation.

Can I refinance my reverse mortgage to a lower interest rate?

Possibly. Some borrowers refinance their reverse mortgage if another product better suits their needs. Whether refinancing is appropriate depends on your circumstances, available products and any costs involved.

Is the interest rate the most important thing to compare?

The interest rate is important, but it's only one part of the overall product. Features such as voluntary repayments, payment options, fees, future drawdown flexibility and customer support may also influence which reverse mortgage is most suitable.

Will I always owe more every year?

If you don't make voluntary repayments, the loan balance will generally increase over time as interest is added. The rate of growth depends on factors such as the interest rate, how much you've borrowed and whether you access additional funds later.

Can I estimate how much interest I'll pay?

Many lenders and brokers provide calculators that estimate how your loan balance may grow over time based on assumed interest rates. These estimates are illustrative only, as future interest rates and property values may change.

What Next?

Understanding how interest works is one of the most important parts of deciding whether a reverse mortgage is right for you.

Unlike a traditional home loan, a reverse mortgage generally doesn't require regular repayments while you continue to meet the loan conditions. Instead, interest is usually added to your outstanding loan balance, which means the amount you owe can increase over time through compound interest.

How quickly your loan grows depends on several factors, including how much you borrow, when you access the funds, the interest rate that applies to your loan and whether you make any voluntary repayments.

While reverse mortgage interest can seem unfamiliar at first, the underlying principles are straightforward. The more you understand how interest is calculated and the options available to manage it, the better equipped you'll be to decide how much equity to access and when.

The next step is understanding how this interest affects your loan balance over time. In the next guide, we'll look at how reverse mortgage balances can grow over the years, explore worked examples and show you how to estimate what you or your estate may eventually owe.