Home Equity Conversion Mortgages (HECM) in Australia: 2025 Guide

For many Australians, their home is their largest financial asset. As retirement approaches, tapping into that value can become an appealing way to boost income and maintain lifestyle. Enter the Home Equity Conversion Mortgage (HECM)—a financial tool that’s gaining popularity as property prices remain high and superannuation balances lag behind rising living costs.

What Is a Home Equity Conversion Mortgage?

In Australia, HECMs are commonly referred to as ‘reverse mortgages’. Unlike a traditional mortgage where you make repayments to a lender, a HECM lets you borrow against your home’s equity, receiving funds as a lump sum, line of credit, or regular payments. The loan is typically repaid when you sell the home, move into aged care, or pass away.

Key features of HECMs in 2025 include:

• Eligibility: Usually available to homeowners aged 60 or older.

• No regular repayments: Interest compounds and is paid off from the eventual sale of the property.

• Government regulation: All reverse mortgages must comply with National Consumer Credit Protection Act and ASIC guidelines.

Major Australian banks exited the reverse mortgage market after the 2018 Royal Commission, but specialist lenders like Heartland and Household Capital have filled the gap, offering products with lifetime occupancy guarantees and negative equity protection (meaning you can’t owe more than your home’s value).

2025 Policy Updates and Market Trends

The Australian government has stepped up efforts to make HECMs safer and more transparent for seniors. As of 2025:

• Stricter lending standards: Lenders must clearly disclose total costs, including compound interest projections.

• Mandatory independent legal advice: Borrowers are required to obtain independent legal counsel before signing.

• Pension impacts clarified: Centrelink has updated its rules, clarifying how HECM proceeds affect the Age Pension assets and income tests.

• Government’s Pension Loans Scheme rebranded: The Home Equity Access Scheme (HEAS) continues, offering a government-backed alternative with lower rates but capped withdrawal amounts.

With inflation pressures and a rapidly ageing population, the HECM market in Australia has grown by over 15% year-on-year. More retirees are viewing their home as a retirement funding source, especially in high-value property markets like Sydney and Melbourne.

Risks, Benefits, and Real-World Scenarios

Like any major financial decision, HECMs come with both advantages and drawbacks. Here’s a balanced look:

Pros:

  - Access funds without selling your home.

  - Flexible payout options to suit your needs.

  - Stay in your home for life, provided you meet loan conditions.

Cons:

  - Compound interest can erode equity quickly.

  - Limits on how much you can borrow, usually a percentage of home value based on age.

  - Potential impact on government benefits and estate planning.

For example, Margaret, 74, in Brisbane, used a HECM in 2024 to fund home modifications and supplement her pension. Her lender projected that, at 6.8% interest, her $120,000 loan could grow to $230,000 in 10 years if left unpaid. However, her home’s value is expected to increase, and her children are supportive of her decision to age in place.

It’s crucial to weigh the financial and emotional implications with family and professional advisers. HECMs are not a one-size-fits-all solution, but they can be a lifeline for retirees with significant home equity and limited cash flow.

Is a HECM Right for You?

If you’re considering a HECM, start by assessing your retirement goals, understanding all fees and interest, and considering how the loan will affect your heirs. With new rules in 2025, borrowers are better protected, but it’s still essential to make informed choices. Compare lenders, ask about product features, and factor in government alternatives like the Home Equity Access Scheme.