Reverse Mortgages in Victoria: Legal and Elder-Law Considerations

What a reverse mortgage actually is

Section 13A of the National Credit Code — Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth) — defines a reverse mortgage as an arrangement involving a credit contract (other than a bridging finance contract) and a mortgage over a dwelling or land securing the debtor’s obligations, where the debtor’s total liability under the contract or mortgage may exceed the maximum amount of credit without the debtor being obliged to reduce it to or below that maximum. ASIC may also declare kinds of arrangements to be reverse mortgages. Total liability can exceed the amount of credit because interest and some fees and charges are not part of the “amount of credit”.

Stripped of the marketing, three features follow from that definition:

• You remain the owner. The lender takes security, not title. That distinguishes a reverse mortgage from a home reversion or equity-sale product, where a share of the property is actually sold. The protections in this article attach to regulated credit; they do not automatically attach to every equity-release structure.
• No regular repayments are usually required. Voluntary repayments are often permitted, and making them changes the arithmetic dramatically.
• Interest capitalises. Unpaid interest is added to the balance and earns interest in turn.

Funds may be taken as a lump sum, a line of credit, a regular income stream, or a combination. The structure chosen affects both the interest cost and how the money is treated for pension and aged care purposes.

How the debt compounds — an illustration

The single most important thing to understand is compounding. The following is an arithmetic illustration only — not a quote, a forecast or financial advice. It assumes a $150,000 lump sum drawn at the start, a constant nominal interest rate of 8% per annum compounding monthly, and no repayments, fees or further drawdowns. Actual rates, compounding frequency, fees and contract terms differ between products, and future property values are unknown.

Figures are rounded to the nearest thousand dollars. On these assumptions the balance roughly doubles about every nine years, so it is close to five times the original amount after twenty years. A higher rate, additional drawdowns or capitalised fees increase the balance faster. Nothing here says anything about what the home will be worth: that depends on the property market and cannot be predicted. That is why the statutory projections described below are worth reading line by line, and why the length of time the borrower is likely to remain in the home matters as much as the headline rate.

The consumer credit protections that apply

Where the borrowing is regulated consumer credit, the National Consumer Credit Protection Act 2009 (Cth) imposes reverse-mortgage-specific obligations on licensees in addition to the general responsible lending regime:

• Projections and an information statement. Section 133DB requires the licensee, before making the preliminary assessment or assessment, to show the consumer projections of the property value and the consumer’s indebtedness over time, made in accordance with the regulations using a website approved by ASIC, to give the consumer a printed copy of those projections, to tell the consumer prescribed matters, and to give a reverse mortgage information statement. Regulation 28LD deals with how projections may be given, and regulation 28LE identifies the prescribed form of the information statement.
• Availability of the information statement. Sections 133DC and 133DD require licensees who provide or arrange reverse mortgages to make the information statement available through a relevant website and in other prescribed situations.
• Inquiries about future needs. Regulation 28HA of the National Consumer Credit Protection Regulations 2010 (Cth) requires reasonable inquiries about the consumer’s requirements and objectives in meeting possible future needs, expressly including a possible need for aged care accommodation and whether the consumer prefers to leave equity in the home to their estate. Those two matters are elder-law questions written into credit regulation.
• Loan to value presumptions. Regulation 28LC prescribes circumstances in which the contract is unsuitable unless the contrary is proved: a loan to value ratio above 15% where the youngest borrower is 55 or younger, and above 15% plus 1% for each year of age over 55 where the youngest borrower is older. The regulation’s own examples are 20% at age 60 and 30% at age 70.

Nothing in this scheme guarantees a good outcome. It shifts inquiry and disclosure duties onto the credit provider and the broker, and it gives a borrower or an adviser a documentary trail to test later. Keep every projection, every information statement and every version of the contract.

Negative equity protection — and its limits

Subdivision B of Division 1 of Part 5 of the National Credit Code contains the no-negative-equity guarantee. Section 86A applies where the debtor’s accrued liability under the contract exceeds the adjusted market value of the reverse mortgaged property (worked out, and adjusted, in accordance with the regulations) and the credit provider receives at least that adjusted market value, either as a payment accepted from the debtor or as proceeds of the lender’s sale of the property. Where it applies:

• the debtor’s obligations under the credit contract, and the mortgage securing them, are discharged by force of section 86B;
• any excess of the amount received over the adjusted market value must be paid to the debtor under section 86C; and
• the credit provider must not purport to require, or accept, further payments under the contract (section 86D).

Those consequences do not apply where the debtor engaged in fraud or made a misrepresentation relating to the reverse mortgage — before, at or after the time the contract was made — or where circumstances prescribed by the regulations exist: section 86E. Section 86F confirms the subdivision does not limit other provisions of the Division. Where those exceptions apply and the lender seeks to recover a shortfall, section 93A imposes extra content requirements on the default notice, including the amount received, the accrued liability just before it was received, and which section 86E conditions are said to be met, and requires a copy to be given to a practising lawyer known to be acting for the debtor.

The limits deserve emphasis. Negative equity protection caps the lender’s recovery against the borrower; it does not stop the debt consuming the equity in the home, does not preserve a gift in a will, and does not protect a co-resident who is not a borrower. ASIC Moneysmart guidance states that the statutory protection applies to reverse mortgages taken out from 18 September 2012. A borrower whose arrangement was entered into earlier, or whose arrangement is not regulated consumer credit, should check the contract terms and obtain advice rather than assume the statutory protection applies.

Default, occupancy and enforcement

Section 18A of the National Credit Code prohibits a credit provider from entering into (or changing) a reverse mortgage credit contract that provides a basis for beginning enforcement proceedings for certain events. Those events include:

• failing to inform the credit provider that another person occupies the property;
• failing, while the debtor occupies the property, to give evidence that the debtor or a nominated person occupies or occupied it;
• leaving the property unoccupied while it remains the debtor’s principal place of residence;
• failing to pay a cost owed to someone other than the credit provider within three years after it fell due;
• failing to comply with a contract provision that does not make clear how the debtor is to comply;
• breaching another credit contract with the same credit provider; and
• other prescribed events involving an act or omission by the debtor.

What remains enforceable still matters a great deal. Contracts routinely require rates, insurance and reasonable maintenance to be kept up, and they define the repayment triggers. Read the trigger clause with a pen: what counts as permanently ceasing to occupy the home, how long an absence for hospital or respite care is permitted, how much time the borrower or the estate has to sell, whether interest continues during that period, and what discharge or break costs apply. Where the credit contract provides for nominating a person to occupy the property, section 185A requires the credit provider to keep records of nominations and revocations — so make any nomination in writing and keep your copy.

Capacity and independent advice

A borrower must have the mental capacity to understand the transaction: broadly, its nature, that the home is being mortgaged, that the debt will grow without repayments, and the practical consequences for the borrower, any co-resident and the estate. Capacity is decision-specific and time-specific. A person who can manage day-to-day finances may still lack capacity for a complex long-term secured borrowing.

Related but distinct is the question of free and informed consent. Undue influence and unconscionable dealing remain live risks where an older person borrows against the home at the suggestion of an adult child, particularly where that child receives the funds, arranges the meetings or interprets the documents. Independent legal advice, given privately and recorded contemporaneously, is the practical protection — both for the older person and for a family member acting in good faith who may later be accused of pressure. Section 18C of the National Credit Code specifically contemplates regulations regulating or prohibiting entry into a reverse mortgage where the debtor has not obtained legal advice in accordance with the regulations.

Our guides to elder financial abuse in Victoria and misuse of a power of attorney deal with the warning signs in more detail.

Attorneys and enduring powers of attorney

Where the homeowner has lost capacity, a reverse mortgage can only be entered into by someone with authority — usually an attorney for financial matters under an enduring power of attorney, or an administrator appointed by VCAT. The Powers of Attorney Act 2014 (Vic) sets the boundaries:

• Section 63 duties. The attorney must act honestly, diligently and in good faith, exercise reasonable skill and care, not use the position for profit except as permitted, avoid acting where there is or may be a conflict of interest unless authorised by the power, the principal or VCAT, keep confidences, and keep accurate records and accounts.
• Section 64 conflict transactions. An attorney for financial matters has a duty not to enter into a transaction in that capacity where there is or may be a conflict between the attorney’s duty to the principal and the interests of the attorney or a relative, business associate or close friend of the attorney.
• Section 65 permitted conflict transactions. Such a transaction may nonetheless be entered into where the principal authorised it in advance, or VCAT authorised it before the transaction; VCAT may also validate a completed conflict transaction, and a principal with capacity for the transaction may validate one in the circumstances the section describes.
• Sections 66 to 69. Records and accounts must be kept; gifts are confined to what section 67 permits; maintenance of the principal’s dependants is dealt with by section 68; and the attorney must keep the attorney’s property separate from the principal’s under section 69.

The practical questions are therefore: does the instrument authorise borrowing and mortgaging at all; is the borrowing genuinely for the principal’s benefit; who actually receives the money; and does the arrangement need authorisation because it benefits the attorney or the attorney’s family? A reverse mortgage taken out by an attorney to fund a renovation of the attorney’s own home, or to make early “inheritance” distributions, is the paradigm problem case. See also our guide to powers of attorney in Victoria.

Spouses, partners and other co-residents

A significant risk arises where a reverse mortgage is documented in one name and two people live in the house. If the sole borrower dies or moves permanently into care, repayment may be triggered even though the survivor still lives there, depending on the terms of the credit contract and whether any effective tenancy or occupancy protection applies.

The Code addresses this through disclosure rather than prohibition. Section 18B requires that, where a proposed contract does not include a tenancy protection provision giving a person other than the debtor a right against the credit provider to occupy the property, the debtor must be told so in writing — by the person providing the credit service, and by the credit provider before entering the contract. Section 67A makes ineffective a purported change to a contract that reduces existing tenancy protection.

Matters to investigate before signing therefore include: whether all registered owners must sign the contract and mortgage; whether both eligible occupants can, and should, be borrowers; whether contractual tenancy protection or an occupancy nomination is available for a person who is not a borrower; whether any such protection operates both after the death of a borrower and after a permanent departure from the home; and what time is allowed to repay or sell once a trigger occurs. An adult child living in the home, or a second-marriage spouse with a life interest under a will, needs particular attention, and the answers should be confirmed against the documents rather than assumed.

Moving into aged care

Reverse mortgages and residential aged care intersect awkwardly. A permanent move out of the home is commonly a repayment trigger, so the product that funded home-based care may force a sale at the moment the family is least able to manage one. Borrowing to pay a refundable accommodation deposit means paying compounding interest on a sum that will eventually be refunded, and it may affect the asset-testing position for both the pension and aged care fees, depending on ownership, occupation, how the funds are used, timing and the means-testing rules current at the time.

Before any decision, work through the interaction with our guides to aged care costs, RADs and DAPs and powers of attorney for aged care decisions, and obtain specialist financial advice. Means-testing rules and thresholds change; do not rely on figures quoted in a brochure.

Death, the estate and inheritances

On the borrower’s death the debt does not disappear. It is ordinarily a liability of the estate, secured over the home, and interest generally continues to accrue until discharge. The executor usually has to sell or refinance within the period the contract allows, while also dealing with probate, insurance and vacant-property risks. Three estate-planning consequences follow:

• A specific gift may be substantially reduced. A will that leaves “my house at X to my daughter” may leave her a house carrying a large secured debt. Whether the debt is borne by the property or by the residue depends on the terms of the will and the applicable rules; say so expressly rather than leaving it to inference.
• An intended equalisation may no longer operate as planned. Plans built on “the house to one, the investments to the other” can become badly unbalanced after a decade of compounding.
• Claims risk rises. A shrinking estate increases the practical pressure of family provision claims and disputes about how the borrowed funds were used during the deceased’s lifetime.

If a reverse mortgage is entered into, the will should be reviewed at the same time — see how to make a valid Will in Victoria and executor duties in Victoria.

Alternatives worth considering

• Home Equity Access Scheme. A Commonwealth loan administered by Services Australia, secured against Australian real estate and paid as a fortnightly income stream or as advances. It has its own current interest rate, eligibility criteria, limits on the payments available, security requirements and repayment rules. Check the current details with Services Australia, and obtain licensed financial advice before comparing it with any commercial product.
• Downsizing. Releases equity outright, with transaction costs, potential pension consequences and the personal cost of leaving a familiar home.
• A documented family loan or arrangement. Workable where family relationships are sound, but only if it is in writing and deals with interest, repayment, death and relationship breakdown.
• A granny flat arrangement. Informal arrangements can produce serious disputes when they are not properly documented. See our guide to granny flat agreements in Victoria.
• Concessions, rebates and a smaller conventional loan. Rates and utility concessions, home maintenance programs and modest serviced borrowing sometimes solve the actual cash-flow problem at a fraction of the cost.

A safer decision process

When legal advice is needed

Obtain advice before signing where any of the following is present: a co-resident who is not a borrower; a proposal put forward or arranged by an adult child; any doubt about capacity; an attorney or administrator signing on the homeowner’s behalf; a will that makes a specific gift of the home; a planned move into aged care; a second marriage or blended family; or an equity-release product that is not a conventional mortgage. Advice afterwards is also worthwhile if a lender has issued a default notice, if a shortfall is being claimed despite negative equity protection, or if an executor has inherited the problem.

Conclusion

A reverse mortgage is neither a trap nor a solution in itself. For some households it converts an illiquid asset into the funds needed to stay at home safely; for others it quietly transfers the family home to a lender over fifteen years and leaves a surviving partner exposed. The Commonwealth protections are substantial — negative equity protection, restrictions on default events, projections and disclosure, presumptions about loan to value ratios — but they regulate the lender rather than resolve the family questions. Those questions are about capacity, authority, occupation and inheritance, and they should be answered in writing before anyone signs.

Frequently Asked Questions

Sources and further reading

• National Consumer Credit Protection Act 2009 (Cth) — ss 133DB–133DD and the National Credit Code (Schedule 1), ss 13A, 18A–18C, 67A, 86A–86F, 93A, 185A
• National Consumer Credit Protection Regulations 2010 (Cth) — regs 28HA, 28LC, 28LD, 28LE
• Powers of Attorney Act 2014 (Vic) — ss 63–70
• ASIC Moneysmart — reverse mortgage and home equity release, including the reverse mortgage calculator
• Services Australia — Home Equity Access Scheme (eligibility, current interest rate and costs)

This article is general legal information about Victorian and Commonwealth law as at 18 August 2026. It is not legal, credit or financial advice and does not take account of your circumstances. Legislation, regulations, interest rates and means-testing rules change; check the current authorised versions and obtain advice before acting.