Is the interest on a reverse mortgage recalculated after the holder dies?

2 answers | Last updated: Oct 12, 2016
A fellow caregiver asked...

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 Answers

Barbara Steinberg is the CEO and founder of BLS Eldercare Financial Solutions, which specializes in helping families pay for long-term care for their loved ones. A registered financial gerontologist, she speaks regularly on the topic of paying for long-term care and is a financial expert for Caring.com.

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.


Community Answers

Sjolley2 answered...

Just an add on here: Reverse Mortgage interest is compounded daily or monthly and accrues at an alarming rate. In addition you paid a large up front mortgage insurance premium and will pay ongoing monthly payments with the only benefit to you that you don't have to pay more than the house is worth when the loan is due and payable.. The biggest benefit is to the lender who always recovers 100% of their loan, fees and costs through the loan payoff and the FHA insurance fund that is currently 2.8 billion dollars in the red for reverse mortgages. Sandy Jolley Reverse Mortgage Suitability and Abuse Expert