Is the interest on a reverse mortgage recalculated after the holder dies?
If the reverse mortgage interest is calculated with the expectation that the holder will live to 100 years of age, does the interest recalculate if the holder dies after only 6 years?
Expert Answer
Reverse mortgage interest is not recalculated upon the death of the borrower. The interest rate on a reverse mortgage is determined by current market interest rates + the lender's margin, or profit. It can be fixed or variable. A fixed rate never changes throughout the life of the loan. A variable rate can change monthly or annually, depending on your choice at closing. Fluctuations in the interest rate are due to changing market conditions; they have nothing to do with the borrower.
The borrower's life expectancy is used to determine how much you can borrow. The older you are, the more you can borrow. This is because the calculation is based on life expectancy. It is not set at age 100. Life expectancy is determined by your current age. For example, a 92 year old has a life expectancy of 4.4 years. The lender will have to wait less time to recoup its money than with a younger person.