All Reverse Mortgage, Inc. (ARLO) introduced the first-ever reverse mortgage amortization calculator demonstrating repayment scenarios. You can select the amount you wish to pay monthly, and our calculator will display how this affects your future loan balance and available line of credit.
Additionally, we have created an innovative reverse mortgage amortization calculator that allows you to adjust for future interest rates, appreciation rates, and payment assumptions.
Benefits of Making Payments on a Reverse Mortgage
Have you ever considered the advantages of a reverse mortgage loan over a traditional loan? Do you view reverse mortgage loans as merely a last-resort option?
If you’ve ever believed that obtaining a reverse mortgage loan means you won’t have any home equity left for the rest of your life, it’s time to rethink. The reality is that a reverse mortgage can offer benefits surpassing those of traditional loans.
A lesser-known yet significant feature of reverse mortgage loans is the absence of prepayment penalties. Homeowners are free to make payments at any time without any obligation. Indeed, you can secure a reverse mortgage that doesn’t require monthly payments yet still choose to make payments to reduce the loan balance for the future or fully pay it off over time.
Homeowners have the flexibility to make partial repayments in various ways. Some opt to pay an amount each month that maintains the loan balance at the initial amount borrowed. Others choose to pay more with the goal of eventually repaying the loan in full.
Now, one might ask:
“Why would I get a Reverse Mortgage if I am just going to make payments?”
People across the country are increasingly opting for reverse mortgages for various reasons. Compared to traditional loans, reverse mortgages have more lenient qualification criteria regarding income and credit requirements.
Individuals on a fixed income or those unable to traditionally verify their income might find it challenging to qualify for a conventional loan. However, the current guidelines for reverse mortgages do not impose income requirements, and the credit criteria are minimal, making it significantly easier to qualify for this financial product.
How is a reverse mortgage calculated?
Using a reverse mortgage calculator, the age of the youngest borrower (or spouse) and the expected interest rate will determine the loan-to-value percentage a borrower will be eligible for. This figure is applied to the home value to determine the principal limit and the total available loan amount on a reverse mortgage.
Does interest accrue on a reverse mortgage?
Yes. A reverse mortgage does not require any monthly mortgage payments. By default, the interest due is added to the outstanding loan balance. Therefore, the loan amount will increase over time. However, voluntary repayments of interest and principal are permitted on a reverse mortgage loan, so while payments are not required, you can make one at any time, should you desire.
Does a reverse mortgage have negative amortization?
Yes. On a traditional loan, you typically have a structured 30-year repayment, and the amortization schedule will show a balance that decreases with each payment. On a reverse mortgage, interest charges are added to your outstanding loan balance, which rises each month, creating negative amortization. You can stop negative amortization by applying for an interest-only payment at any given month.
How is compound interest calculated on a reverse mortgage?
When you do not make an interest repayment on a reverse mortgage loan, the interest that was due is rolled onto the outstanding loan balance the next month. Then, the loan servicer will charge interest the next month on your new loan balance; this is called compounding interest.
Is interest on a reverse mortgage tax deductible?
Interest becomes deductible when it is actually repaid. If you use a reverse mortgage loan as intended and make no payments, you will not have paid any interest during the calendar year. However, if you make voluntary payments towards your reverse mortgage loan, you may pay interest within a calendar year and potentially benefit from a deduction. It’s important to note that repayments made to a reverse mortgage loan are first applied to the Mortgage Insurance Premiums on the loan before they can be applied to interest. This means you would not have paid any interest if your repayments were small and did not exceed the amount of mortgage insurance premiums accrued. *Consult your trusted tax professional.