One of the biggest benefits of a Reverse Mortgage is making the monthly Principal and Interest payments optional. In fact, this is why 67% of people get a reverse mortgage! So, why would a senior homeowner with a reverse mortgage make payments?
Here are some reasons:
1. For every dollar paid, the line of credit grows the same amount. For example, with the adjustable rate option, the borrower pays $1,000, the line of credit grows $1,000. The line of credit grows by compound interest monthly, and is protected from what happens in the market. The growth is tax free and the proceeds are not taxable either. So, a savvy borrower could treat their reverse mortgage line of credit like their own personal account with funds available as needed.
2. Another reason to make a payment is the principal is paid down. The waterfall of payments are as follows: mortgage insurance premium, interest, principal. For the borrower concerned about leaving the most they can to their heirs, this is the way to do that as they will pay less interest, have a smaller loan balance and have more equity.
3. Borrowers like the flexibility of making a partial interest only payment, a full principal and interest payment or no payment. Sometimes a borrower gets a windfall (i.e. tax refund, or inheritance), and can pay down their mortgage balance.
I often tell clients:
“A reverse mortgage doesn’t take away your ability to make payments—it takes away the obligation. You keep the choice.”
Or:
“Think of it like this: with a traditional mortgage, the bank tells you when and how much to pay. With a reverse mortgage, you decide.”
When Making Payments Makes the Most Sense
Voluntary payments can be especially beneficial if you:
• Want to preserve as much home equity as possible.
• Have irregular income or occasional windfalls.
• Plan to stay in the home for many years.
• Want to maximize what you leave to heirs.
• Prefer flexibility over obligation.
For many affluent homeowners, the ideal strategy is to eliminate the mandatory payment while retaining the option to make payments whenever it makes financial sense. That combination of flexibility and control is one of the reverse mortgage’s most valuable—and often overlooked—features.
Reach out if you have any questions or want to discuss your options.
