Using a Reverse Mortgage to Fund Aged Care in Australia
Can I use a reverse mortgage to pay for aged care in Australia? It is one of the most common questions families face once a parent has been assessed for residential care. Picture the situation: the facility they prefer has a Refundable Accommodation Deposit of $500,000 or more, the spouse still lives in the family home, and savings alone fall well short. A reverse mortgage may offer a practical path forward, though suitability depends on age, available equity, lender policy, and how the arrangement is structured. Individual assessment is always required.
Funding aged care through home equity is a legitimate, well-established strategy. Reverse Mortgages Australia is a specialist senior finance advisory that has helped families explore and structure exactly these arrangements. This article walks through what the approach covers, how it affects your pension and means test, and how to assess whether it suits your situation.
What aged care costs a reverse mortgage can cover
RAD: paying the big entry cost with a lump sum
A Refundable Accommodation Deposit can be paid using a lump sum drawn from a reverse mortgage. The national average RAD is now around $605,000 (based on 2025, 2026 sector data), with facilities in Sydney and Melbourne averaging above $720,000. Once you pay that deposit to the aged care provider, it is generally no longer counted as your asset for means-testing purposes. It belongs to the facility as a liability they owe back to you or your estate.
How much you can borrow depends on your age and property value. The table below shows typical limits across Australian lenders. Exact percentages vary by lender and product, refer to individual lender policy pages or Moneysmart for current figures.
| Age | Maximum borrowing (% of property value) |
|---|---|
| 60 | 15, 20% |
| 65 | 20, 25% |
| 70 | 25, 30% |
| 75 | 30, 35% |
| 80 | 35, 40% |
| 85+ | 40, 45% |
For a couple, the younger borrower’s age sets the limit. An 80-year-old with a $900,000 property could potentially access $315,000 to $360,000, enough to cover many RADs without requiring a sale.
DAP and in-home care: drawing down as you go
If a lump-sum RAD does not suit, you can elect to pay a Daily Accommodation Payment instead. A reverse mortgage line of credit can fund these ongoing charges through regular drawdowns, and you only accrue interest on what you have actually drawn. The same structure can work effectively for Home Care Package supplements, home modifications, and personal care costs, supporting someone to age in place longer before a residential move becomes necessary. Typical uses include funding Level 3 or Level 4 Home Care Packages, accessibility modifications, and short-term respite.
Can I use a reverse mortgage to pay for aged care in Australia? Key considerations for pension and means testing
The loan itself is not treated as income by Centrelink. The key consideration is what happens with the money once you receive it. If you leave the proceeds sitting in a bank account, that cash becomes an assessable asset and can reduce your Age Pension or increase your means-tested care fees. Spending the funds promptly on care costs, particularly a RAD, removes that problem entirely.
When drawn funds remain unspent, Centrelink applies an exemption for a limited window: assets test assessment is deferred for 90 days. After that, the unspent cash proceeds become an assessable asset. This 90-day rule is outlined in Services Australia’s guidance on lump sums and home equity access. The practical implication is straightforward: using a reverse mortgage to pay a RAD directly is one of the cleanest outcomes, because the funds move from the loan to an aged care provider almost immediately.
What happens to the family home?
Your principal home remains exempt from the Age Pension assets test even with a reverse mortgage secured against it. Taking out the loan does not jeopardise that exemption. This is a point of genuine relief for many clients who worry about losing pension entitlement simply by accessing their equity.
Aged care means testing is a separate and more nuanced calculation. It considers both your income and your assets, and if loan proceeds are retained rather than spent, they can lift your means-tested care fee. This is precisely where a one-size-fits-all answer from a lender’s brochure falls short. The structuring matters as much as the decision to borrow.
HEAS vs a commercial reverse mortgage: which fits aged care?
The Home Equity Access Scheme (HEAS), run by Services Australia, offers a low interest rate of 3.95% p.a. (as at 2026, per the Services Australia HEAS information page) and fortnightly payments capped at roughly 150% of the maximum Age Pension rate. It suits ongoing income supplementation for care costs, but it cannot deliver a lump sum large enough to pay a RAD of $400,000 or more. If your primary need is upfront capital, HEAS is not built for it.
Commercial reverse mortgages carry higher rates, typically 8, 9% p.a., and interest compounds on the outstanding balance, usually calculated daily and capitalised monthly. That compounding effect is real and worth modelling carefully over a horizon of 5, 10, or 15 years. The trade-off is capacity: they can release the upfront funds that a RAD requires. Some families use HEAS for ongoing top-ups while using a smaller commercial reverse mortgage to cover the RAD, this is one possible approach, though it is an example of what can work rather than a general recommendation. Whether that dual structure makes sense depends on your equity position, your care plan, and how long you expect to hold the loan. Seek tailored advice before combining products.
Two scenarios that show this in practice
Scenario A: Margaret, 81, funding her RAD without selling
Margaret’s home is valued at $900,000. Her husband still lives there. The aged care facility she prefers has a $350,000 RAD. Using a reverse mortgage lump sum, she pays the RAD on entry. Her husband’s home is undisturbed, the RAD is refunded to the estate when she leaves care, and no forced sale is required. The loan balance grows against the property, but the outcome preserves the family situation and avoids a stressful, rushed real estate transaction.
Scenario B: Brian and Helen, 74 and 72, funding in-home care
Brian and Helen set up a reverse mortgage line of credit to cover a Level 4 Home Care Package supplement and a series of home modifications, a ramp, bathroom rails, and a stairlift. They draw funds gradually rather than as a lump sum, which means interest accrues only on what they have used. Before committing, they model the balance growth using an equity calculator across different drawdown scenarios, so they enter the arrangement with a clear picture of the long-term cost.
Estimating what your equity could realistically cover
Your available equity depends on three things: the age of the younger borrower, your property value, and any existing mortgage that needs to be cleared first. Before speaking with any lender, it is worth running the numbers yourself so you understand the realistic range and are not surprised mid-conversation.
Reverse Mortgages Australia offers a personalised equity calculator on their website that allows you to estimate your accessible equity, model how interest compounds over time, and compare different drawdown strategies across multiple time horizons. It is a practical first step for anyone weighing up whether home equity release for aged care is a viable option.
There is also a free downloadable guide written in plain language, useful for adult children who are helping a parent navigate the decision and want to understand the mechanics before a family conversation.
Making a confident decision starts with the right numbers
So, can you use a reverse mortgage to pay for aged care in Australia? In many cases, yes, though the outcome depends on careful structuring. With the right advice, home equity release may help protect Age Pension entitlement if proceeds are applied promptly and within Centrelink rules, preserve the family home, and remove the pressure of a forced sale at a difficult time. Every family’s situation is different, particularly around the means test and care fee calculations. For guidance, refer to Services Australia’s aged care pages and My Aged Care for the official framework, then seek professional advice tailored to your circumstances.
Use the equity calculator on the Reverse Mortgages Australia website as your starting point, then reach out for a no-pressure, personalised conversation about your options. If getting to an office is difficult, an in-home consultation is available. The next step is simpler than it might feel right now.
