![]() When a borrower takes out a loan from a lender, such as a reverse mortgage lender, they are liable for repaying both the loan’s principal as well as the interest (and fees) that accrue over time. If the borrower has elected to take out a line of credit as part of their funding method, the amount of available credit increases along with the total size of the loan. ![]() Rather than the borrower paying down the balance over time, the balance increases as interest is applied to the balance. However, reverse mortgages are distinct from traditional mortgages in that they utilize reverse amortization. For example, when paying off a traditional mortgage, borrowers may start by paying down the interest before they begin making payments on the principal - the actual amount that they took out. In the case of a traditional loan or mortgage, amortization refers to the method and amount by which a loan may be repaid over time. How does reverse mortgage amortization work? This makes reverse mortgages a safe and stable option for many retirees looking for an additional source of retirement income. That means that, even if the total balance of your loan exceeds the appraised value of your home, neither the borrower nor their heirs will ever owe more than the appraised value of the home. It’s also important to note that reverse mortgages are non-recourse loans. This table may also include factors like mortgage insurance, annual fees, closing costs, and any other regular expenses associated with the loan.Īdditionally, an amortization table may include an estimate of the amount of equity available in the home, and the size of the line of credit that borrowers have access to if they choose to use their reverse mortgage proceeds as a line of credit. Often, an amortization table - see our example further down - will be shown to borrowers during the application process for or signing of the loan. It allows borrowers to access the equity they’ve built up in their homes and use it as a source of cash flow, as either a lump sum, monthly payments, or a line of credit.Ī reverse mortgage amortization schedule is a way that reverse mortgage lenders can demonstrate the rate of the loan balance increase to borrowers.
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