Your Home in Retirement — Downsizing, Retirement Villages and Reverse Mortgages

For most Australians, the family home is the largest asset they own — often worth more than their superannuation, their savings, and everything else combined. Yet when it comes to retirement planning, housing decisions are frequently left to last, made under pressure, or not fully understood until it's too late to change course.

This article covers the three biggest housing decisions in retirement: whether to downsize, whether a retirement village makes sense, and whether accessing your home's equity through a reverse mortgage or the government's Home Equity Access Scheme is worth considering. These are complex topics — but they don't need to be confusing.

The family home and the Age Pension — a crucial starting point

Before anything else, it's worth understanding the unique status the family home has in the retirement system.

Your principal place of residence is exempt from the Age Pension assets test — regardless of its value. A home worth $500,000 and a home worth $2 million are treated identically for pension purposes: neither counts as an assessable asset.

This exclusion creates an incentive for retirees to remain in their larger homes to preserve their wealth and retain access to the pension, rather than downsizing to more suitable properties. As a result, older Australians often hold on to homes that are no longer necessary for their needs.

This is not a criticism — it is simply the reality of how the system works, and it's important to understand it before making any housing decision. Selling the family home and investing the proceeds can significantly affect your pension entitlement because money you receive from the sale becomes an assessable asset.

Downsizing — the decision more people face than discuss

More than 50% of older Australians are considering a move to a smaller home or retirement community in the next five years. The motivations are usually a mix of practical and financial: a large home becomes harder to maintain, the garden becomes a burden, the stairs become a hazard, and children who once filled the rooms have long since moved out.

Downsizing makes sense for many people — but it deserves careful thought before acting.

The Age Pension impact of downsizing

When you sell your home, the portion of proceeds used to buy, build or renovate another home is exempt from the assets test for up to 12 months. This is an important protection — it means you don't lose pension entitlements simply because you're between properties.

However, any money left over after purchasing a new home — the surplus from selling a more expensive home and buying a cheaper one — becomes an assessable asset immediately. Only the remaining proceeds after buying a new home are assessed.

But the money released from selling is assessable, even though the home itself was not.

This is the most commonly misunderstood aspect of downsizing. A couple who sells a $1 million home and buys a $600,000 apartment now has $400,000 in new assessable assets. Depending on what other assets they hold, this could reduce their Age Pension — or eliminate it entirely.

The Downsizes Contribution — a major super opportunity

One of the most valuable strategies available when downsizing is the Downsize Contribution. As of July 2025, Australians aged 55 and over can contribute up to $300,000 (or $600,000 per couple) from the sale of a qualifying home into superannuation, without it counting against the normal contribution caps.

This is a once-in-a-lifetime opportunity and one of the most generous super rules available to older Australians. The money moved into superannuation in pension phase is in a tax-free environment — which may be significantly more tax-effective than leaving the proceeds in a bank account where they are subject to deeming under the income test.

Other costs of downsizing to factor in

It's easy to focus on the headline numbers — selling price versus purchase price — and miss the real costs of moving. They include:

Stamp duty on the new property — significant in most states.

Real estate agent fees— typically 1.5–2.5% of the sale price

Conveyancing and legal costs — both buying and selling

Moving costs and any renovations to the new property

Emotional costs — often underestimated. Leaving a home of 30 or 40 years is a significant life transition

Before going ahead, check the tax impact and whether a move will affect your government benefits. Consider contacting Centrelink to talk through the implications for your specific situation before you commit.

Retirement villages — understanding the real costs

Retirement villages are appealing for good reasons: community, security, low maintenance, and often excellent facilities. But the financial structure of retirement villages is genuinely unlike anything most people have encountered before — and it deserves meticulous attention.

The three layers of costs

Entry costs (ingoing contribution)

According to a 2023 Property Council of Australia report, the median entry price for a two-bedroom unit in a retirement village was $559,000. This varies significantly depending on location, village size, and amenities offered.

Importantly, in most retirement villages, you are not buying a property in the traditional sense. Most contracts are either a licence to occupy or a leasehold arrangement — you are paying for the right to live there, not purchasing freehold title. This has significant implications for stamp duty, capital gains, and what you can expect to receive when you leave.

Ongoing service fees

Almost all retirement villages charge ongoing maintenance or management fees, usually payable weekly, fortnightly or monthly. These cover managing the village including staff and standard services, standard maintenance of common areas and facilities, and utility bills for common areas.

According to the Property Council's Retirement Census, the average monthly service charge for a two-bedroom unit was $518. This is in addition to your own personal utility costs and any optional services you take up. These fees can and do increase over time.

The Deferred Management Fee (DMF) — the one that surprises people most

This is the exit fee, and it is where many families get a significant shock. When you leave the retirement village permanently, your initial entry payment is returned to you minus the Deferred Management Fee. At many villages, this is around 30% of what you initially paid if you live in the village for six years or more. Before that, it is calculated at around five percent per year.

So on a $559,000 entry payment, a 30% DMF means $167,700 is retained by the operator when you leave. You receive back around $391,000 — and that is before any other exit costs such as reinstatement of the unit.

The DMF is perhaps the hardest fee to come to grips with, not helped by the fact that different states and villages use vastly different names including exit fee, departure fee, deferred management fee, retention amount or outgoing payment. Regardless of the name, this is the cost you or your estate are liable for on your departure, whether you move elsewhere, need a higher level of care, or pass away while still living there.

What to do before signing anything

Get independent legal advice before signing any retirement village contract — this is not optional.

The contracts are genuinely complex.

Get the disclosure statement and read it in full.

Every village is legally required to provide one.Use the government's retirement village cost calculator for your state — NSW Fair Trading, Consumer Affairs Victoria and equivalent bodies in other states provide free calculators.

Ask specifically about the DMF formula and get it in writing — how it's calculated, when it applies, and what happens if you need to leave in the first year.

Visit more than once</strong> — at different times of day and on weekdays as well as weekends.

Talk to current residents without staff present if possible.

Reverse mortgages and the Home Equity Access Scheme

Many Australian retirees find themselves in a situation that sounds almost contradictory: they own a home worth hundreds of thousands — sometimes millions — of dollars, but struggle to cover day-to-day living costs. This is what financial planners call being "asset rich but cash poor."

Two options exist for accessing your home's equity without selling: a commercial reverse mortgage from a private lender, and the Government's Home Equity Access Scheme (HEAS).

How reverse mortgages work

A reverse mortgage works a little like a home loan in reverse. It is a loan that allows you to borrow money against the equity you have in your home. Borrowers are required to pay interest on the loan, but regular repayments are not required. Instead, interest is added to the loan amount. The loan must be repaid when the property is sold.

The key protection is the no negative equity guarantee. Reverse mortgages taken out from 18 September 2012 have negative equity protection. This means you can't end up owing the lender more than your home is worth.

The key risk is compound interest. Because you don't make monthly repayments, the debt grows every month. If you borrow $100,000 at 8% interest, in 10 years you might owe approximately $215,000 — and in 15 years approximately $317,000. Commercial reverse mortgage rates in 2026 are around 7–9% per year.

The Home Equity Access Scheme — the government alternative

The federal government's Home Equity Access Scheme allows older Australians to access their housing wealth. It is open to Australian residents aged 67 or older who own real estate in Australia, regardless of whether they receive the Age Pension.

The interest rate is dramatically lower than commercial options. The interest rate on the scheme is currently 3.95% and has been unchanged since January 2022. This is below the Reserve Bank's official cash rate and well below commercial reverse mortgages at 8–9%, making it relatively cheap compared with other options.

Payments are capped at 150% of the maximum fortnightly pension rate. From 2022, lump sum advances are also available in addition to the regular fortnightly payments.

The payments have no impact on Age Pension payments if the loan is taken as a regular income stream to fund living expenses or as non-assessable assets. This is an important point — the HEAS can top up pension income without reducing it.

Despite these advantages, government data shows just 18,691 people are currently taking part in the scheme — a relatively low take-up. A recent report from Deloitte estimates reverse mortgages are used to access only about 1% of the $3 trillion value of housing wealth owned by Australians aged 60 and over.

Research has found that accessing housing wealth through HEAS can allow families to bring forward bequests and reduce the uncertainty around the timing of inheritances — an underappreciated benefit that goes beyond simply improving the retiree's own income.

Is equity release right for you?

There is no universal answer. But here is a framework for thinking about it:

If you need to supplement income but don't want to sell</strong> — the HEAS is worth investigating first, given the dramatically lower interest rate

If you need a larger lump sum than HEAS provides — a commercial reverse mortgage may be worth exploring, but get independent financial and legal advice first</li> <li><strong>If you are considering it to fund investments — think carefully.

If you are borrowing to invest, it puts your whole home at risk, not just the portion you are investing. Discuss with family — any equity release reduces what will eventually pass to your estate. Having an honest conversation with adult children before proceeding avoids difficult surprises later

The bottom line

Housing decisions in retirement are among the most consequential you will make — financially, practically, and emotionally. The family home sits at the intersection of the Age Pension system, superannuation strategy, aged care planning, and estate planning. A decision that seems straightforward on the surface often has significant ripple effects across all of these areas.

The common thread through all of it is this: take your time, get independent advice — both financial and legal — and never feel pressured into a decision by anyone, whether that's a retirement village salesperson, a well-meaning family member, or financial anxiety.

If you have been through any of these decisions — downsizing, moving to a retirement village, or accessing your home's equity — I'd love to hear your experience in the comments. Real stories from real people are worth more than any guide.

This article is general in nature and does not constitute financial, legal or real estate advice. Rules and thresholds mentioned are current as of May 2026 but can change. Always seek qualified professional advice for your specific situation before making significant housing decisions.