Most retirees hold the majority of their wealth in a building they can't sell a corner of. A reverse mortgage converts that illiquid equity into cash flow — which for someone asset-rich and cash-poor can change the whole picture. It is also expensive, compounds against you, and shrinks what you leave behind. Both of those things are true.
The loan compounds; the house grows. Whichever grows faster decides what's left.
A product with a poor reputation, some of it deserved, that genuinely helps a specific group of people.
You borrow against your home and make no repayments. The interest is added to the balance instead, so the debt grows year after year, and the whole thing is settled when you sell, move into care, or die — usually out of the sale proceeds.
The appeal is straightforward: most retirees hold the majority of their wealth in a building, and a building pays no bills. This turns some of that into money you can actually spend, without moving.
The cost is that compounding runs against you rather than for you. At 8% with nothing being repaid, a debt roughly doubles every nine years. That's the number that makes people uncomfortable, and they're right to notice it.
Their home is worth $750,000 with $90,000 still owing. They have $55,000 in savings, $38,000 of income, and spend $54,000 — so they're eating into savings at $16,000 a year and will be out of cash in under four years.
They take monthly payments rather than a lump sum: about $1,200 a month for the next twenty years. That closes the gap almost entirely, and their savings stop draining.
By age 92 the debt would have grown to a substantial figure, leaving meaningfully less equity than if they'd done nothing.
That's the honest trade: twenty years of not worrying about money, in exchange for a much smaller inheritance. For them it's clearly worth it — they'd otherwise be broke at 76 in a house worth three-quarters of a million. For someone with ample savings and children counting on the house, it would be a poor deal.
The profile is fairly specific: asset-rich and cash-poor, old enough that compounding has less time to run, expecting to stay in the home, and not primarily trying to preserve it for someone else. If that's you, the case can be strong.
If you're 63, have decent savings, might move in five years, or the house is earmarked for the children, the case is weak — and the calculator will tell you so.
One last thing: involve your family early. Children very often prefer their parents to use the money, and finding out afterwards is what causes trouble. The conversation is easier than people expect.
General information only — not financial advice, and definitely not a recommendation. Reverse mortgages are heavily regulated and the rules differ enormously by country: borrowing limits, no-negative-equity guarantees, mandatory counselling, whether a surviving spouse can stay, how the loan interacts with means-tested benefits and aged care assessments, and what happens if you move into care. Every one of those can change the answer. The borrowing capacity shown here is a transparent model based on the numbers you enter, not a quote — actual limits are set by lender formulas that vary by product and jurisdiction. Anyone seriously considering one should get independent advice, involve their family early, and read the contract with a lawyer.