Reverse mortgages are the most popular form of home equity release for retirees. A reverse mortgage allows people over 55 to access some of the home equity in their home, helping to fund a more comfortable retirement. Importantly, with a reverse mortgage you can continue to own and live in your home.

'Home equity' is the value of your home, less any money you owe on it (on your mortgage).

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A 'reverse mortgage' lets you access some of your home equity, while you continue to live in your home. For example, you may want money for medical expenses or to help with living costs.

A reverse mortgage allows you to borrow money using the equity in your home as security.

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If you're aged 55 or over, the most you can borrow is likely to be 15-20% of your home’s value. As a guide, add 1% for each year over 55. So, at 65, the most you can borrow will be about 10% of the value of your home. The minimum amount varies, but it’s typically about $15,000.

As with any standard home loan, a reverse mortgage is secured by registering a first mortgage over your property.

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The primary difference between the two types of loans is that a reverse mortgage doesn’t require you to make regular repayments. Your monthly interest compounds over time and increases the balance of your loan, unless you choose to make monthly interest payments.

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At the same time, you remain the owner of your home and reap the full benefit of the growth in the value of your home over time.

Your full loan balance is paid off once you no longer need the property (i.e., when you die, or move out permanently - for example, into a nursing home or respite care). The loan is repaid in full, including interest and fees, when:

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you sell your home.

you move out of your home, or

your deceased estate sells your home.

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You may be able to make voluntary repayments earlier. You are also protected from your property falling into negative equity.

Yes, you can move out of your home after you’ve taken out a reverse mortgage - but be aware that once you move out permanently, your entire loan balance may become payable within a shorter time frame than originally expected (usually 12 months).

The cost of a reverse mortgage varies from borrower to borrower. Major influencing factors include:

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how much you’re borrowing.

how you’re borrowing it (e.g., a lump sum payment will cost more due to compounding interest).

the interest rate and fees you’ll be charged (for example, loan establishment, ongoing fees, valuation).

how long you intend to hold your loan.

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It definitely pays to shop around for your reverse mortgage.

Not necessarily. For example, if the reverse mortgage is paid out, then your property becomes debt-free again. Many reverse mortgage holders find their families are happy to assist with this, keeping the home in the family. There may be additional fees attached to paying out your reverse mortgage earlier. This information will be in your loan contract, and must be taken into account.

Here are a few things you to consider before taking out a reverse mortgage.

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Reverse mortgage interest is calculated on your daily outstanding balance, and added monthly to your loan account, meaning your loan balance will increase over time.The amount of equity you can draw down is determined by your age, property value, and other loan approval criteria.

Drawing funds from your property now can reduce what you could potentially access later on.

Variable interest rates mean that there will be changes to what you are charged over time.There are fees and charges for setting up the loan, depending on what options you select, so you’ll want to ensure you can access ta product that meets your budget.

Negative equity happens when you owe more on your home than it’s worth, which means your debt cannot be fully repaid, even when your home is sold.

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Reverse mortgages are protected from this:‍

Any reverse mortgage taken out after 18 September 2012 has negative equity protection. This means you won’t end up owing the lender more than your home is worth.

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If you took out a reverse mortgage before this date, check your loan contract. If it doesn't include negative equity protection, speak to an expert at Compare Club because you may still have options.