By Tyler Plack
Tyler Plack is the President of South River Mortgage. Tyler holds an active FHA Direct Endorsement (DE) underwriting certification and is the author of The Retirement Solution: Maximizing Your BenefitTyler is a seasoned entrepreneur and real estate investor renowned for his expertise in reverse mortgages and his commitment to addressing seniors' equity challenges. Tyler brings a unique perspective to his ventures, having built several successful companies throughout his career. His insights are frequently sought by industry publications, where he is recognized for his vast knowledge in the realm of reverse mortgages.
An avid investor in income-producing properties, Tyler is dedicated to helping seniors navigate their financial needs with compassion and expertise. When Tyler is not helping solve America's retirement crisis, he is a skilled pilot flying airplanes for fun.
Reverse mortgage interest can feel confusing at first.
With a regular mortgage, you make monthly payments and the loan balance usually goes down over time.
A reverse mortgage works the opposite way.
You don’t make required monthly mortgage payments. Instead, interest and certain fees are added to the loan balance over time. That means the amount you owe grows as the loan continues. The CFPB explains that with a reverse mortgage, interest and fees are added to the loan balance each month, causing the balance to increase over time.
Let’s walk through how this works in plain English.
The Basic Idea
A reverse mortgage lets homeowners age 62 or older access part of their home equity without making monthly mortgage payments.
Instead of paying the lender each month, the loan balance grows as costs are added.
Your balance may grow because of:
- Money you receive from the loan
- Interest charged on the loan balance
- Mortgage insurance premiums
- Certain loan fees, if applicable
This doesn’t mean you’re doing anything wrong.
It’s simply how reverse mortgages are designed to work.
When Does Interest Start?
Interest starts accruing once money is borrowed.
If you take a lump sum, interest begins accruing on that amount right away.
If you use a line of credit, interest only accrues on the money you actually draw. Funds left unused in the line of credit do not accrue interest.
That’s why many borrowers like the line of credit option. It gives them access to money without forcing them to borrow everything at once.
Is Interest Paid Monthly?
No, not usually.
With a reverse mortgage, you’re not required to make monthly principal and interest payments while you live in the home and meet the loan rules.
Instead, interest is added to the balance.
So instead of the balance going down like a normal mortgage, it usually goes up.
HUD explains that HECM borrowers may stay in their homes indefinitely as long as they keep property taxes and homeowners insurance current.
What Gets Added to the Loan Balance?
Each month, your loan balance may grow because of interest and other loan-related costs.
These can include:
- Interest on borrowed funds
- Ongoing mortgage insurance premiums
- Servicing fees, if charged
- Any additional funds you draw from the loan
The FTC also explains that the lender adds interest each month to the balance you owe.
Simple Example
Let’s say you take out a reverse mortgage and draw $100,000.
If interest and insurance costs are added over time, your balance may grow each month.
You don’t have to make a monthly payment, but the amount owed increases.
If you later draw another $20,000, interest begins accruing on that additional amount too.
That’s why the timing and method of taking funds matters.
Fixed vs Adjustable Rates
Reverse mortgages can have fixed or adjustable interest rates.
A fixed-rate reverse mortgage keeps the same interest rate for the life of the loan. These are often tied to lump-sum payouts.
An adjustable-rate reverse mortgage can change over time. These loans often offer more flexible payout options, including a line of credit or monthly payments.
Your interest rate matters because it affects:
- How fast your loan balance grows
- How much equity may remain later
- How much you may qualify for upfront
Higher rates usually mean less available borrowing power and faster balance growth.
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What About the Line of Credit Growth Rate?
This part surprises people.
With an adjustable-rate HECM line of credit, unused funds can grow over time.
This does not mean the lender is paying you interest like a savings account.
It means your available borrowing limit increases under the loan formula.
In simple terms, the unused credit line may become larger over time, giving you more borrowing power later.
That’s one reason some homeowners open a reverse mortgage line of credit before they need the money.
Does Interest Reduce Home Equity?
Yes.
As the loan balance grows, your home equity may decrease.
That doesn’t mean all equity disappears. Home value may also rise over time.
Your future equity depends on several things, including:
- How much you borrow
- How long the loan lasts
- Interest rates
- Home value changes
- Mortgage insurance and fees
This is why it’s important to look at the numbers before deciding.
When Is the Interest Paid Back?
Interest is usually paid back when the loan becomes due.
That typically happens when:
- You sell the home
- You move out permanently
- The last borrower passes away
At that point, the home is usually sold or refinanced to repay the loan balance.
The balance includes the money borrowed, interest, mortgage insurance, and any other loan costs.
Can You Make Payments If You Want To?
Yes.
Reverse mortgages do not require monthly mortgage payments, but you can make voluntary payments if you choose.
Some borrowers do this to slow balance growth or preserve more equity.
You can typically pay:
Interest only
A partial amount
A larger lump sum
The full loan balance
This flexibility can be useful for homeowners who want access to equity but also want more control over long-term costs.
The Bottom Line
Interest on a reverse mortgage accrues over time and is added to your loan balance.
That’s why the balance usually grows instead of shrinks.
But you’re not required to make monthly mortgage payments as long as you live in the home and meet loan rules, including paying property taxes, keeping homeowners insurance, and maintaining the property. The CFPB notes that borrowers must pay property taxes and insurance, use the property as their main residence, and keep the home in good condition.
The key is understanding how the loan works before you move forward.
See What You May Qualify For
Every reverse mortgage is different.
Your interest rate, payout option, home value, and age all affect your numbers.
The easiest way to understand your options is to get a personalized estimate.
You can check your eligibility and see your estimated reverse mortgage proceeds in seconds using our free calculator.
There’s no pressure and no obligation.
Get your instant reverse mortgage quote today and see what may be possible.
FAQ – How Interest Accrues in a Reverse Mortgage
Does interest accrue every month on a reverse mortgage?
Yes. Interest is added to the loan balance over time, usually monthly.
Do I have to pay the interest each month?
No. You’re not required to make monthly mortgage payments while you live in the home and follow the loan rules.
Does interest accrue on unused line of credit funds?
No. Interest accrues only on funds you actually borrow, not on unused credit line funds.
Why does my reverse mortgage balance go up?
Your balance grows because borrowed funds, interest, mortgage insurance premiums, and certain fees are added over time.
Can I make payments to reduce the interest?
Yes. You can make voluntary payments if you want to slow balance growth or preserve more equity.
What happens to the interest when I pass away?
The interest is included in the total payoff amount. Heirs usually repay the loan by selling or refinancing the home.
Can the loan balance become higher than the home value?
Yes, it can happen. But with an FHA-insured HECM, the loan is non-recourse, which means you or your heirs won’t owe more than the home is worth when the loan is repaid.
