Same Structure, Different Rate, and One of Them Pays Lump Sums
A commercial reverse mortgage and the Home Equity Access Scheme do the same thing: lend against your home, compound the interest, and take repayment when the property is sold. What separates them is the interest rate, which the government sets for one and the market sets for the other, and the amounts available, which the scheme caps and a commercial lender does not.
- The answer: The scheme lends at a government-set rate with a cap on the amount; a commercial reverse mortgage lends more at a market rate.
- The trap: Compounding at a higher rate over twenty years is a very different debt. The rate gap is the whole of the comparison and it is easy to underweight.
- The recommendation: Use the scheme for anything it can cover, and a commercial product only for amounts it cannot.
Where the AI summary above gets this wrong
"Reverse mortgages are dangerous because the debt grows out of control."
That's surface-true. Here's what it misses:
- Both carry a no-negative-equity guarantee — The amount repayable cannot exceed the value of the property, so the downside is bounded at the house rather than unbounded.
- The government scheme is materially cheaper — Its rate is set by government and has been well below commercial reverse mortgage rates, and over twenty years of compounding that difference dominates everything else.
01 What they have in common
Both lend against the equity in your home, both compound the interest on the outstanding balance, and both take repayment when the property is sold or from the estate. Neither requires repayments while you live there.
Both carry a no-negative-equity guarantee, so the amount repayable cannot exceed the property's value. That is a statutory protection for commercial products and a feature of the government scheme.
Both reduce what passes to your beneficiaries, and both are conversations to have with the people expecting to inherit the house rather than decisions to present to them afterwards.
Source: Services Australia — Age Pension
02 Where they differ
The rate is the main difference. The Home Equity Access Scheme lends at a rate set by government which has been well below commercial reverse mortgage rates, and compounding magnifies that gap over the years such a loan typically runs.
The amount is the other. The scheme caps the combined total of pension and loan payment at a multiple of the maximum pension rate, and lump sum advances are capped as a proportion of the annual maximum. A commercial product can lend considerably more.
Flexibility differs too: commercial products offer larger lump sums, lines of credit and combinations. The scheme's mechanics are in the scheme post.
Shows: what the same borrowing compounds to at two different interest rates over the years a reverse mortgage typically runs. Ignores: establishment and ongoing fees, growth in the property value, the no-negative-equity guarantee, and any difference in the amounts available.
03 Which to use
Where the scheme can cover the need, it is straightforwardly cheaper and the comparison does not require much analysis. The rate difference compounded over fifteen or twenty years is substantial.
Where the amount required exceeds what the scheme allows — a large aged care deposit, for instance — a commercial product covers the excess, and using both is permitted subject to the lenders' terms.
In either case, model the balance at the age you expect to reach rather than judging the fortnightly figure. That is the number the estate meets, and it is the only one that makes the decision legible.
Establishment and ongoing fees are the third variable and they differ substantially. A commercial product typically carries application, valuation and legal costs plus an ongoing account fee; the government scheme has a small establishment cost and no ongoing fee, which widens the gap further on a modest loan.
Source: Services Australia — Asset types
The rate gap is the whole comparison and compounding makes it brutal. Four per cent against eight and a half over eighteen years is roughly the difference between owing twice what you borrowed and owing four times. Use the government scheme for everything it can cover.
FAQ
How does a reverse mortgage work?
It lends against the equity in your home, compounds the interest, and takes repayment when the property is sold or from your estate. No repayments are required while you live there, and a no-negative-equity guarantee caps the repayment at the property's value.
Is the government scheme better than a commercial reverse mortgage?
It is cheaper, at a rate set by government that has been well below commercial rates, and it is capped. Use it for anything it can cover, and a commercial product only for amounts it cannot.
How much does the rate difference matter?
Enormously, because it compounds over the years such a loan runs. The gap between a government-set rate and a commercial one over twenty years is frequently larger than the amount originally borrowed.
Sources
Regulator references
- Services Australia — Age Pension · Services Australia · 2026The Age Pension: eligibility, payment rates and how to claim.Last verified: 2026-09-07
- ASIC Moneysmart — Retirement income · ASIC Moneysmart · 2026The sources of retirement income in Australia and how they combine.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
Run this rule against your situation
See what this rule does to your own projection — month by month, to age 90.
Join the Waitlist
Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.