In this video, Cliff from All Reverse answers Mike’s question about the future balance of his grandmother’s reverse mortgage. He explains the two main loan types—adjustable‑rate (the most common) and fixed‑rate (which requires taking the full cash amount at closing)—and recommends the adjustable option for borrowers who only need part of the available funds. Cliff details the initial loan setup: a $220,000 principal that includes the mortgage insurance premium and typical closing costs, plus an unused line of credit of about $80,000 that can be tapped later without accruing interest until used. He shows an amortization illustration based on the current yield curve, noting a starting rate of roughly 2.75% and projecting that, after ten years, the balance could exceed $400,000 under middle‑of‑the‑road assumptions. He emphasizes that the balance grows because interest is added to principal each month (a “rising debt” loan). Finally, Cliff outlines the key drivers of the eventual payoff amount—future interest rates, additional borrowing against the line of credit, and home‑value appreciation—while reassuring that reverse mortgages are non‑recourse, so heirs will never owe more than the home’s worth.
Chapters
Hi there, Mike. This is Cliff with All Reverse, and I actually wanted to address your question in a video format so that I can show off a couple screenshots of your grandmother's potential reverse mortgage scenario. From reading your question, from what your main concern is that I can see is how much will you owe on a reverse mortgage, how much will Grandma owe at the time of her passing away when you would need to refinance that mortgage or sell the house. And in your case, that would be to pay back the reverse mortgage, keep the home, stay in the house by refinancing the current lien. So it's a little bit of a tricky question because there's a lot of what-ifs when you take out a reverse mortgage as far as what interest rates are going to do. What property values can do, um, how much money, uh, you borrow from the reverse mortgage. The way these work is there's two options. Uh, option number one, which is the most popular nationwide, is taking the adjustable rate loan. And because the, uh, adjustable rate allows you to take what you need instead of taking all the money as a lump sum. The second option is this fixed interest rate, which is nice to know that your rate will be fixed for the, the life of the reverse mortgage, but unfortunately you do have to take all available cash at the closing. So if you don't have a need for that money, and you certainly don't want to accrue extra interest on having to be forced to take cash at the closing, then the sensible way and most borrowing philosophy is borrow what you need. So the adjustable rate is probably one of the better suited options for your grandmother taking a reverse mortgage. Now, your question is how much will be owed on the reverse mortgage? Should you need to pay off the lien. That is gonna have to do a lot with how much you borrow in the future from the rest of the money. There will be an open line of credit of almost $80,000 in her case. If she does not touch that, of course, there's not gonna be any further interest added to the loan. That's just nice to know that there is a safety net there if there's an emergency or you need cash for whatever reasons, you can tap into this extra line of credit that can never be frozen. So how much interest would be added to the loan? I'm gonna show you an illustration here in my software that predicts based on the yield curve, because these are monthly adjustable rates. I could show you what, you know, it looks like at the current rate, which is only about 2.75%, and that wouldn't be sensible. Everybody knows that we're in a historically low interest rate environment and rates will certainly be going up. Right here is a screenshot of basically what every part of the reverse mortgage is going to accumulate to, including what the closing costs were to set it up. Oh, and this is over 10 years. I can amortize it over 20, 30 years even. The dark green line represents how much you borrowed to begin with. $220,000, right in that area. Even though the mortgage payoff is only $208,000, you are financing mortgage insurance premium, which is the largest fee in a reverse mortgage. It goes straight to HUD to insure the loan. And origination fees, escrow, title, taxes, all the third-party fees you'd expect you would expect to see on any traditional type of mortgage. So $220, uh, year by year, month and year by year, you have to remember that you're not making that mortgage payment anymore. Instead, there is still interest that is charged, but you're essentially sweeping it under the rug until the house is either sold or you refinance the loan. So month after month, instead of making that payment, it is added to the principal principal balance. So these are called rising debt loans, and that's what a reverse mortgage is. $220,000, the tables show that after 10 years the payoff on that reverse mortgage will be a little over $400,000, and this is a middle-of-the-road calculation. It's not using the lowest of the low rates or the highest of the high. It's using the yield curve. So somewhere right in the middle. So this would be a good estimate. I can send you over and post some amortization schedules, but it all comes down to what rates are going to do, how much she's going to borrow from the reverse mortgage, what the property is going to appreciate for. You know, the value, we can only assume that, you know, what historically is a 4% not necessarily ever going to get back to 4% again each year, but it's nice to know that no matter what happens, there will be that line of credit that will be available. And you can never, in a bona fide sale, owe more than the home is actually worth. So if you needed to sell the house, at least she could not transfer any debt to you. If the tables work out to your favor, we have a decent amount of appreciation in the home 10, 15 years down the road, these loans are set up so that there is enough equity so that the heirs can take care of refinancing the reverse mortgage or selling the house at that time. So thank you very much for your question, and I'm happy I could answer.
