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

Reverse Mortgage vs. Traditional Mortgage - Insights by Expert Cliff Auerswald

13 Nov 2023 · 2 min

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1:31

In this segment, the speaker contrasts conventional amortized fixed‑rate mortgages with reverse mortgages. A traditional mortgage is typically spread over 15‑30 years, featuring a set monthly principal‑and‑interest payment that the borrower makes to the lender until the loan is fully repaid. By contrast, a reverse mortgage accrues interest on the outstanding balance each month, adding that interest to the loan balance instead of requiring a monthly payment from the borrower. The borrower can defer this interest indefinitely, repaying it only when the home is sold or the loan otherwise ends. The speaker also notes that borrowers may voluntarily make interest‑only payments to prevent the loan balance from growing, but this is optional. The explanation highlights the fundamental reversal of cash flow, the role of interest accrual, and the flexibility afforded to reverse‑mortgage borrowers.

Chapters

So a regular mortgage is amortized usually over 15, 20, or 30 years, and there's an interest rate and there's a scheduled monthly payment that you're going to return back to the bank for the life of the loan. Mostly those are fixed-rate mortgages, and you have principal and interest payments that you make until the loan is eventually repaid. Now, a reverse mortgage operates in reverse. The interest is still present, and it's similar to what a conventional mortgage rate is, but instead of you making a payment back to the bank each month, we simply add that interest that's due onto the owing balance at the end of each given month. So month after month, year after year, you can decide to defer that interest until you sell the home at a later time. However, you can, and that's if you would like. Some people don't realize that a reverse mortgage by nature does not have a coupon on your monthly statement where you're going to write a check back. However, you can voluntarily make repayments. So if you want to make interest-only payment back to stop your loan balance from rising, that's entirely up to you. And if you don't, you just simply You don't make a payment back in each month, that interest is then added to the loan balance.