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Understanding a Reverse Mortgage Amortization Schedule

Amortization refers to the process of paying off a mortgage loan over time through regular payments. For a traditional mortgage loan, an amortization schedule shows the amount of principal and the amount of interest each payment is made of up until the loan is paid off. Each payment is typically the same amount early in the schedule, with most of that payment going towards interest. As the end of the loan term approaches, most of the payment goes towards the loan’s principal. The last entry on the amortization schedule shows how much interest and principal payments the borrower pays over the term of the loan. But an amortization schedule for a reverse mortgage is a negative amortized schedule, meaning the balance of the loan increases as time goes on, since your interest obligation is compounded, and it is repaid all at once.

What is a reverse mortgage amortization schedule?

A reverse mortgage amortization schedule summarizes important information for borrowers and typically includes the numbered years of the loan, the interest rate, remaining home equity by year, growth of line of credit, how the interest accumulates over the course of the reverse mortgage loan, and the loan balance. A reverse mortgage amortization schedule is crucial for helping borrowers estimate how much they will owe once the loan is due, which occurs when the last borrower passes away or moves out of the home, at which point the home is typically sold, and the proceeds are used to repay the loan.

Because borrowers of reverse mortgage loans don’t have to make monthly payments, the loan balance will continue to grow to the point that 15 years from now, it could accrue interest twice as fast as the current rate. It’s important to know that the lender will use a variable interest rate to calculate the interest owed at the end of the term, which means the rate can change monthly, or annually, depending on the specific loan conditions. But, just because monthly payments aren’t required, borrowers can still choose to repay the interest each month to keep the mortgage balance amortizing positively, without worrying about pre-payment penalties. Borrowers could add their annual interest and mortgage insurance and divide by twelve months to come up with a monthly payment figure.

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Trying to understand a reverse mortgage amortization schedule can be initially overwhelming, so borrowers should do their homework and then consult with a professional, experienced reverse mortgage lender who can help them make sense of the complicated tables and loan factors. Borrowers shouldn’t be afraid to ask questions so they can make the most informed decision on the best type of reverse mortgage loan that’s right for their unique situation. If you would like to learn more about reverse amortization schedules, don’t hesitate to call us and speak with one of our lending professionals, at (855) 367-4326.

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Please keep in mind that the reverse mortgage industry is constantly changing and some of the information contained on this site may not be current. Please ask a licensed reverse mortgage professional for up-to-date guidelines.