Reverse Mortgage vs. Home Equity Access Scheme: What Pensioners Need to Know in 2026
Many Australian pensioners look at home equity release when day-to-day costs rise but savings feel tight. In 2026, the two main pathways are a commercial reverse mortgage and Centrelink’s Home Equity Access Scheme. Understanding how each option affects the Age Pension, total costs over time, and your estate can help you choose a structure that fits your circumstances.
For many older Australians, the family home is the largest asset but it does not automatically translate into cash flow. In 2026, “unlocking equity” generally means either taking a government-supported loan through Centrelink’s Home Equity Access Scheme, or arranging a commercial reverse mortgage with a specialist lender. The right choice depends on your Age Pension position, how much flexibility you need, and how comfortable you are with compounding debt.
Age Pension impact: will benefits change?
Money you receive from either a reverse mortgage or the Home Equity Access Scheme is generally treated as borrowed funds rather than ordinary income. That distinction matters because, in many cases, loan drawdowns themselves don’t reduce the Age Pension through the income test at the moment you receive them. However, what you do with the money can affect payments. If funds sit in a bank account, they can become assessable under the assets test and may also be subject to deeming rules that influence the income test.
The home remains exempt from the Age Pension assets test while it is your principal residence, but releasing equity can indirectly shift your means-test profile. For example, using released funds for renovations that are part of the home may keep value inside an exempt asset, while transferring cash to investments or gifting money can increase assessable assets or trigger gifting rules. Because the Age Pension is calculated on the most favourable outcome between tests, even small changes to assessable financial assets can move your rate if you are near a threshold.
Downsizing vs unlocking equity: which suits you?
Downsizing can improve cash flow by reducing ongoing costs (rates, insurance, maintenance) and freeing capital, but it also changes your lifestyle and can introduce transaction costs. In Australia, sale and purchase costs (agent commission, conveyancing, removalists, potential stamp duty on the new home) can be substantial, and the timing of the property market matters. Downsizing may also change your Age Pension assessment if you turn an exempt home asset into assessable cash or investments.
Unlocking equity keeps you in the home and can be structured as a lump sum, a regular drawdown, or a line of credit depending on the product. It can be useful for irregular expenses (healthcare gaps, home modifications, replacing a car) or for smoothing budgets. The trade-off is that the debt typically grows over time due to compounding interest, and the longer you remain in the property, the larger the balance can become. A practical lens is to compare certainty: downsizing creates a one-off restructure, while equity release creates an ongoing financial relationship that needs monitoring.
Centrelink Home Equity Access Scheme explained
Centrelink’s Home Equity Access Scheme is a government-run loan that allows eligible older Australians to draw against home equity, often as a fortnightly payment, with limits linked to Age Pension rates under current settings. It can suit people who want a predictable supplement and prefer a program framework rather than a commercial product, but it is still a loan secured against real estate and it accrues interest. Commercial reverse mortgages may offer more product features (such as larger lump sums or flexible credit-style access), but they often come with higher interest rates and more fee variation.
| Product/Service | Provider | Cost Estimation |
|---|---|---|
| Home Equity Access Scheme (loan) | Services Australia (Centrelink) | Interest typically a mid-single-digit annual rate (often lower than commercial products), with costs set by the program; exact rate and fees vary over time and by policy settings. |
| Reverse mortgage (home equity loan) | Heartland Seniors Finance | Interest commonly in the mid-to-high single digits p.a.; establishment and valuation/legal fees may apply depending on loan setup and property. |
| Reverse mortgage (home equity loan) | Australian Seniors Finance | Interest commonly in the mid-to-high single digits p.a.; fees can include establishment, valuation, and ongoing servicing depending on product terms. |
| Home equity release (shared equity style) | Household Capital | Costs are typically structured differently from interest-only lending (provider shares in future property value change); entry and exit costs can apply and vary by contract. |
Prices, rates, or cost estimates mentioned in this article are based on the latest available information but may change over time. Independent research is advised before making financial decisions.
Hidden costs of commercial reverse mortgages
The headline interest rate is only part of the total cost. Because interest compounds, the effective impact depends on how long the loan runs, whether you draw a lump sum or smaller amounts over time, and whether fees are added to the loan balance. Common costs to look for include establishment fees, property valuation fees, legal fees, and ongoing account-keeping charges. Some products also price in risk through higher margins when the loan-to-value ratio is higher, which can matter if you are seeking a larger advance.
A less obvious cost is the effect on your estate and future housing flexibility. As the balance grows, your remaining equity shrinks, which can reduce options later (for example, funding aged care accommodation or helping with relocation costs). Many Australian reverse mortgages include a “no negative equity guarantee” under the National Consumer Credit Protection framework, meaning you should not owe more than the home’s sale value under specified conditions, but the guarantee does not prevent your remaining equity from being materially reduced. It is also important to understand triggers for repayment (selling the home, moving into permanent care, or the last borrower passing away) and whether there are break costs or early repayment conditions.
Real-world pricing insight in 2026 is that government-style equity access often aims for simpler pricing and, historically, a lower interest rate than commercial lenders, while commercial products tend to compete on flexibility, maximum borrowing amounts, and drawdown features. For many households, the biggest “cost” is not a single fee but the long-run compounding effect: borrowing earlier or taking a larger lump sum can result in a significantly higher balance over time compared with staged drawdowns. Comparing options works best when you model a few scenarios (short, medium, long tenure in the home) and consider how holding the proceeds as cash or investments could change Age Pension assessments.
In 2026, the practical decision is usually less about which option is universally better and more about matching the structure to your constraints: Age Pension sensitivity, the need to stay in the home, tolerance for balance growth, and your priorities for the estate. The Home Equity Access Scheme can suit those wanting a program-based approach and controlled payments, while commercial reverse mortgages and other equity-release products can suit those needing higher flexibility. Either way, the core questions are how the funds will be used, how the debt will compound, and how the plan holds up if circumstances change.
