Cliff AuerswaldPresident, All Reverse Mortgage, Inc. · President at All Reverse Mortgage, Inc. (ARLO™) NMLS#14041 Company NMLS #13999

Reverse Mortgage Interest Accrual, Repayments & Maturity Events - Insights by Expert Cliff Auerswald

14 Nov 2023 · 2 min

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1:57

Cliff Auerswald explains how a reverse mortgage line of credit works. The borrower controls the outstanding loan balance and can choose to make monthly repayments or let the balance grow, as there is no fixed due date. The loan ends only upon a defined maturity event: permanent departure from the home for more than 12 consecutive months, the borrower's death, or failure to keep property taxes and homeowner's insurance current. Because the loan is insured by HUD/FHA, lenders face virtually no risk; the insurance covers any shortfall if the home's value falls below the loan balance, and there is no recourse against heirs or other estate assets. Consequently, borrowers can borrow beyond the property's value, with any remaining equity typically passing to heirs after the last surviving borrower dies.

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So on a reverse mortgage line of credit, which is the most popular types that a consumer opts for, the outstanding loan balance is really in your control. Uh, you, you decide if you want to make a payment back each month, like I discussed earlier. So you're really in, in the driver's seat. If you want to make a monthly payment back, At any given month, you're more than welcome to. If you don't wish to, then that loan balance is going to rise over time. There is no due date to a reverse mortgage. There's a maturity event, and that's spelled out in the loan agreement. Maturity events are, uh, one of three things. Until you no longer occupy the home, that means if you leave permanently, uh, defined by a period longer than 12 consecutive months. You pass away, or you fail to maintain your property taxes and your homeowner's insurance. So you can live beyond 100 years old, you could be 110, it doesn't really matter to the servicer because HUD is insuring that loan. There's virtually no risk to the lender per se in that respect. So because it's an insured product, you have some people that live beyond life expectancy and they may cause the product a loss and then many others that do not. And there's plenty of equity that's left in the estate. Ideally, there will always be equity that, that gets transferred over to the heirs after the, the last surviving borrower passes away. However, if the home is upside down, FHA takes the shortfall. So there's no, there's no recourse to heirs on a reverse mortgage. So you can actually borrow beyond the property's value. And any other assets in your estate is not held liable for that.