Can I Release Equity to Pay Off Debt? Here’s What You Need to Know

When you’re drowning in credit card balances, personal loans, or medical bills, the idea of using your home’s value to get out of debt sounds like a lifeline. But is releasing equity to pay off debt a smart move-or a trap waiting to happen? The answer isn’t simple. It depends on how much you owe, how much equity you have, your income, and what happens after you do it. Many Australians have turned to equity release in recent years, especially as interest rates on unsecured debt climbed above 20%. But not everyone comes out ahead.

What Exactly Is Equity Release?

Equity release means borrowing against the value of your home without selling it. In Australia, the most common way is through a reverse mortgage. You don’t make monthly repayments. Instead, the loan grows over time, and it’s paid back when you sell the home, move into aged care, or pass away. The amount you can borrow usually ranges from 15% to 50% of your home’s value, depending on your age, property location, and lender policies. In Brisbane, where median house prices hit $890,000 in late 2025, even a 20% release could mean $178,000 in cash.

But here’s the catch: you’re not getting free money. You’re trading home equity for debt. And that debt compounds. Interest is added to the loan balance every month, and you pay interest on interest. Over 10 years, a $100,000 loan at 6.5% could balloon to over $190,000. That’s not a typo.

Why People Use Equity Release to Pay Off Debt

Most people who consider this option are overwhelmed by high-interest debt. Think credit cards at 22% APR, personal loans at 18%, or medical bills with late fees. If you’re paying $1,500 a month in interest alone, it’s tempting to swap that for a single, lower-rate loan secured by your home. And yes, reverse mortgage rates in Australia are currently averaging 6.3% to 7.1%, which is far lower than unsecured debt.

Take Maria, 68, from Toowoomba. She had $92,000 in credit card debt and a $650,000 home with no mortgage. She took out a $75,000 reverse mortgage. Her monthly interest payments dropped from $1,700 to $390. She stopped calling collectors. Her stress levels fell. But she also gave up 11.5% of her home’s value. She’s now paying interest on a debt that will grow unless she makes voluntary repayments.

The Hidden Costs You Can’t Ignore

Equity release isn’t just about interest rates. There are fees. Upfront establishment fees can run $2,000 to $5,000. Legal advice is mandatory in Australia (under the National Credit Code), and that costs another $800-$1,500. Valuation fees, government charges, and lender insurance add hundreds more. That’s $5,000 gone before you even see a dollar.

And then there’s the long-term impact. If you release $150,000 now, that money plus interest could eat up most of your home’s value by the time your estate settles. Your children might inherit nothing. Or worse-they might inherit a debt if the home sells for less than what’s owed. That’s rare, but it happens when property values drop.

Also, releasing equity can affect your Age Pension. Centrelink looks at your assets. If you deposit the cash into a savings account, it counts as a financial asset. That could reduce your fortnightly payment by $200 or more. If you use the money to pay off debt, it doesn’t count as an asset-but the loan itself still affects your net worth.

When It Makes Sense

Equity release to pay off debt works best in three scenarios:

• You’re over 60 and have no plans to leave your home.
• Your unsecured debt is over $50,000 and carries interest above 15%.
• You have at least 50% equity in your home and can afford to lose some of it.

It also helps if you’re disciplined. Paying off debt with equity release doesn’t mean you stop spending. If you keep using credit cards after the payoff, you’ll end up with two debts: the reverse mortgage and new credit card balances. That’s a recipe for disaster.

When It’s a Bad Idea

Avoid equity release if:

• You’re under 60. Younger borrowers get smaller loan amounts and pay more in interest over time.
• You plan to move in the next 5 years. Selling a home with a reverse mortgage is complicated and expensive.
• You have less than 40% equity. Lenders may deny you or offer tiny amounts.
• You’re relying on your home to fund aged care. If you need residential care later, the loan becomes due immediately.
• You have other assets you haven’t touched-like superannuation or investments. Those should be used first.

One client in Gold Coast tried this at 54. He released $120,000 to clear $110,000 in debt. Three years later, he lost his job. He couldn’t afford the interest. He had to sell his home for $30,000 less than the loan balance. His family had to cover the gap.

Alternatives You Should Consider First

Before you touch your home, ask yourself: is there another way?

• Debt consolidation loan: Unsecured personal loans under 10% interest are still available for good credit scores. Many Australians qualify.
• Balance transfer credit card: Some offer 0% for 18-24 months. Use it to clear debt, then pay it off before the rate jumps.
• Centrelink Financial Hardship Assistance: If you’re on a pension or have low income, you may qualify for grants or repayment plans.
• Downsize: Sell your home, buy a smaller one, and pocket the difference. No debt. No interest. No risk.
• Speak to a free financial counsellor: Through the National Debt Helpline (1800 007 007), you can get a custom plan. No cost. No pressure.

In 2025, over 4,200 Australians used debt counselling to avoid equity release. Of those, 68% avoided it entirely by restructuring payments or negotiating settlements.

What to Do Next

If you’re seriously considering equity release:

1. Get a free home valuation. Use CoreLogic or RP Data. Know your exact equity.
2. Calculate your total unsecured debt. Include minimum payments, interest rates, and fees.
3. Use a reverse mortgage calculator. Most lenders (like Seniors Finance or Equity Lending Group) have them online.
4. Book a free session with a financial counsellor. They’re trained to spot red flags.
5. Get legal advice. Never sign anything without it.

And if you’re still unsure? Walk away for 30 days. Debt doesn’t disappear overnight. But neither does your home. Make sure you’re not trading long-term security for short-term relief.