A reverse mortgage allows you to receive payments from your home equity rather than make a monthly payment to repay the obligation.

One little-known fact, for example, is that you can get a reverse mortgage and can make payments on it when that meets your goals and if you want to.  Or, you can turn it into an interest-only mortgage, meaning you don’t pay toward the principal of the loan, just the interest that’s accruing.

ARLO explains reverse mortgage interest repayment options

Why make repayments on a reverse mortgage loan?

1.  Easier to qualify compared to conventional loans.

You may still be eligible for a reverse mortgage if you have difficulty qualifying for a conventional or “forward” mortgage or refinance because your income or credit doesn’t meet the requirements.

2.  There’s no missed-payment penalty.

Suppose you have a reverse mortgage on your home but opt to make payments (without penalty) to maintain the equity while remaining there.  In that case, you won’t face a downside if you miss a payment.  It’s entirely up to you how much you want to put toward the reverse mortgage.

3.  There’s a low-fee option available.  

While many people tend to focus on the costs associated with getting a reverse mortgage, there are often options available that will allow a lender to pay some or most of the costs for you (and that doesn’t mean finance them in the loan – if this is available the lender writes the check to pay these costs on your behalf).

What makes it possible to make payments on your reverse mortgage loan to pay it back over time is that there are no prepayment penalties.  If you consider your forward mortgage and paying that off early, your lender would likely charge a prepayment penalty.

For reverse mortgages, that penalty doesn’t exist.  And because the payment is optional, if your income is sporadic, you can pay at any time without fear of adverse credit reporting if you can’t pay sometimes or want to wait for next month.

The Big Picture

Ultimately, setting up a payment plan with your reverse mortgage will allow you to eliminate your mortgage but maintain your home equity over time, leaving your future options open.

To understand what a payment plan might look like, look at our reverse mortgage amortization calculatorYou can enter the approximate payments you plan to make.  The calculator will generate the loan balance and interest that accrues over time.

Some Limitations

Depending on the type of reverse mortgage you have, there may be some limitations to making payments before the loan becomes due.  If you have a reverse mortgage line of credit, there are no restrictions, and you can pay any amount anytime.

If you have a closed-end reverse mortgage (the fixed-rate, lump sum draw option), any payment you make toward the loan balance cannot then be reborrowed.  Finally, if you have a loan under which you receive tenured payments over time, you must change your payment plan option to apply prepayments to your loan.

Repayment FAQs


How do you repay the interest on a reverse mortgage?

Reverse mortgage borrowers receive a statement from the servicer monthly.  Among other things (like the servicer’s name, phone number, address, and loan number), the statement tells them the amount of interest that accrues, the balance owed, and the remaining amount of money available to the borrower on loan.  If you wish to pay the interest as it accrues on the loan, you need this information to send a check to the servicer.  Remember, your loan documents outline how any payments received will be credited, and they will go first to the mortgage insurance.  Next, any payments will be credited to any fees or amount the lender has had to advance on your behalf, if any (most loans today do not have recurring fees like servicing costs, but loans originated long ago commonly had a $25.00 monthly servicing fee).  Then, the payments will be credited to interest and the outstanding principal balance.  You cannot indicate that you would like funds applied to interest ahead of the other items that will be paid first.

Does a reverse mortgage continue to accrue interest if you don’t make payments?

Reverse mortgages are like any other loan.  They will continue to accrue interest if there is an outstanding loan balance until the day the loan is paid in full.

What happens when you pay down a reverse mortgage loan?

A fixed-rate reverse mortgage is a closed-ended loan, meaning there can only be one draw, regardless of whether you pay the balance down.  If you pay the balance down with a fixed rate, you owe less and accrue less interest but cannot borrow any more money.  With an adjustable-rate loan, the answer is different.  The loan is open-ended, so if you pay the balance, you can reborrow any funds that the repayment frees up on your line of credit.  You can reborrow funds on an adjustable-rate line of credit if you have funds available.

How does interest work on a reverse mortgage?

Reverse mortgage loans accrue interest on the outstanding balance of the loan.  Suppose the borrower uses the loan as intended (making no monthly mortgage payment).  In that case, the credit will grow as the interest owed is added to the loan balance (in addition to the mortgage insurance renewal premium).  Borrowers are not required to make a payment on the loan as long as they live in the home and meet the loan requirements (pay the property taxes, insurance, HOA dues, if any, and adequately maintain the house), but they may choose to do so at any time without penalty.

Is the interest compounded if you choose to make payments on the loan?

If you make payments on the reverse mortgage and reduce the balance, you do not pay interest on the balance you no longer owe, but any remaining balance will accrue interest just as any other loan.  Compounding interest happens when you accrue interest on the interest you accrued and did not pay.  There is no interest compounding if you make payments covering the interest accrued.
Understanding Reverse Mortgage Repayments and Interest with Cliff
Keeping Reverse Mortgage Interest Manageable

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