1. What is Reverse Mortgage Interest Amortization?

Reverse Mortgage Interest Amortization calculates how the loan balance grows over time due to accrued interest in a reverse mortgage arrangement, where interest compounds monthly on the outstanding balance.

2. How Does the Calculator Work?

The calculator uses the reverse mortgage interest amortization formula:

Where:

• \( Balance_t \) — New balance at time t (dollars)
• \( Balance_{t-1} \) — Previous balance (dollars)
• \( r \) — Annual interest rate (decimal)

Explanation: The formula calculates how the loan balance increases each month due to accrued interest in a reverse mortgage.

3. Importance of Reverse Mortgage Interest Calculation

Details: Understanding how reverse mortgage interest accrues is crucial for borrowers to comprehend how their loan balance grows over time and impacts their home equity.

4. Using the Calculator

Tips: Enter the previous balance in dollars and annual interest rate as a decimal (e.g., 0.05 for 5%). Both values must be valid (balance > 0, rate between 0-1).

5. Frequently Asked Questions (FAQ)

Q1: How often does reverse mortgage interest compound?
A: Reverse mortgage interest typically compounds monthly, which is reflected in this calculation.

Q2: Does this calculation include any payments?
A: No, this calculation only shows interest accrual. Reverse mortgages typically don't require monthly payments.

Q3: What happens when the reverse mortgage balance exceeds home value?
A: Most reverse mortgages are non-recourse loans, meaning the borrower won't owe more than the home's value when sold.

Q4: Can I make payments on a reverse mortgage?
A: While not required, some reverse mortgages allow voluntary payments to reduce the balance and preserve equity.

Q5: How does this differ from traditional mortgage amortization?
A: Reverse mortgages accumulate interest rather than paying it down, causing the balance to increase over time instead of decrease.