The law expects the debt to grow
The National Credit Code sets two conditions for an arrangement to be a reverse mortgage. The first reads:
“The first condition is that the debtor’s total liability under the credit contract or mortgage may exceed (to a limited or unlimited extent) the maximum amount of credit that may be provided under the contract without the debtor being obliged to reduce that liability to or below that maximum amount.”
National Credit Code, section 13A(2), on the Federal Register of Legislation
Put plainly, the loan is allowed to outgrow its own limit, and the borrower is not obliged to pay it back under that limit when it does. The second condition is that any prerequisites the regulations set for the arrangement are met. ASIC may also declare other kinds of arrangement, involving a credit contract and a mortgage over a home or land, to be reverse mortgages.
Interest on interest, five years at a time
The table follows this guide’s illustration: $100,000 borrowed once at 60, against a home worth $600,000.
| Age | Owed | Home | Left in the home | Owed as a share of the home |
|---|---|---|---|---|
| 60 | $100,000 | $600,000 | $500,000 | 16.7% |
| 65 | $140,255 | $695,564 | $555,309 | 20.2% |
| 70 | $196,715 | $806,350 | $609,635 | 24.4% |
| 75 | $275,903 | $934,780 | $658,877 | 29.5% |
| 80 | $386,968 | $1,083,667 | $696,699 | 35.7% |
| 85 | $542,743 | $1,256,267 | $713,524 | 43.2% |
How the table was workedBy hand, for this guide. The home rises 3% a year, the house-price growth ASIC’s calculator assumes unless it is changed, and the loan is charged 7% a year, the rate the calculator starts from when a loan’s own rate is not entered. Interest is added once a year, with no fees, no further drawings and no repayments. It is not a forecast and not any lender’s loan.
Two things stand out. First, the growth speeds up. In the first five years the debt grows by about $40,000; from 80 to 85 it grows by more than $155,000, at the same rate, because each year’s interest is charged on a larger balance.
Second, the debt and the home grow at different speeds. At 7% added yearly, the debt almost doubles every ten years, while a home rising 3% a year gains about a third over the same ten years. That difference, not the rate alone, is what wears down the share of the home left to the borrower.
Where the balance starts
The starting balance is limited by age. Moneysmart’s guide is that at 60 the most a person can borrow is likely to be 15 to 20% of the home’s value, adding about 1% for each year over 60, so about 20 to 25% at 65. The minimum varies, and Moneysmart puts it at typically about $10,000.
When a lender or broker runs ASIC’s calculator, choosing the lender applies that lender’s own limits, including its loan-to-valuation ratio, minimum borrowing age and maximum loan amount.
A loan can be drawn as lump sums or as regular amounts. The calculator takes up to five separate lump sums; where a borrower means to draw more than five, ASIC suggests the lender or broker estimate the average yearly drawdown and enter it as a regular payment.
The rate sets the slope
Moneysmart says the interest rate on a reverse mortgage is likely to be higher than on a standard home loan. With no repayments, nothing slows the compounding, so a small difference in the rate becomes a large difference in the debt. In the same illustration at 9% a year instead of 7%, the debt at 85 would be about $862,300 rather than about $542,700.
That is why one of the three projections a borrower must be shown is the effect of interest rates 2% higher. The guide to the projections you must be shown sets out all three.
The government’s loan compounds too
The Home Equity Access Scheme charges an annual interest rate that compounds each fortnight on the loan balance, until the loan is repaid in full. When this page was checked on 8 October 2026, Services Australia gave that rate as 3.95% a year. Where Services Australia defers repaying a scheme loan after a borrower’s death, as its repayment page says it may in some cases, the loan keeps accruing interest. The guide to the Home Equity Access Scheme covers the rest of it.
What can slow it
Moneysmart says a borrower may be able to make voluntary repayments earlier, if they wish, and may also be able to protect a portion of the home’s equity from being eroded by the loan. A loan under the Home Equity Access Scheme can be repaid in part or in full at any time.
Where it stops
However far the balance grows, Moneysmart says a reverse mortgage taken out from 18 September 2012 has negative equity protection: the borrower can’t end up owing the lender more than the home is worth. The National Credit Code makes exceptions: the protection does not apply if the borrower committed fraud, or made a misrepresentation, about the reverse mortgage, or in circumstances the regulations prescribe. That ceiling is the subject of the no negative equity protection, and the last payment is the subject of when the loan ends.