Reverse Mortgage Interest Calculator

On a forward mortgage, interest is charged and extinguished every month: your payment covers it, and the balance falls. A reverse mortgage inverts this. Interest is calculated monthly on the outstanding balance and then added to that balance, where it earns interest itself the following month. So does the 0.5% annual mortgage insurance premium, which accrues alongside interest on the same balance. Nothing is due, nothing is billed, and the loan negatively amortizes — the balance climbs on a compounding curve for as long as the loan is outstanding.

Compounding is the operative word. A $150,000 balance accruing at 6.55% does not grow by a flat $9,825 (6.55% of $150,000) each year; compounded monthly it grows by $10,125 in year one, more in year two, and meaningfully more in year fifteen, because each year's accrual is calculated on a base that already includes every prior year's interest. Borrowers may make voluntary payments at any time without penalty — some pay the interest annually to hold the balance flat — but the default trajectory, and the one this page's calculator projects, is untouched compounding. To watch that curve month by month rather than as an end-point number, our reverse mortgage amortization calculator charts the full schedule.

The fixed-versus-adjustable fork is not a pure rate preference the way it is on a forward mortgage, because HECM program rules tie the payout structure to the rate type. A fixed-rate HECM permits exactly one disbursement format: a single lump sum drawn in full at closing. The rate never changes, which makes long projections precise, but every dollar starts accruing interest on day one whether you needed it immediately or not.

An adjustable-rate HECM unlocks every other payout structure the program offers: a line of credit you draw as needed, monthly tenure or term payments, or blends of the three. Interest accrues only on what you have actually drawn — funds still sitting in the line cost nothing — which for many borrowers makes the adjustable version cheaper in accrued interest despite the moving rate. If monthly-payment structures are the draw, our reverse mortgage monthly payment calculator models tenure and term payouts; the line-of-credit mechanics get their own treatment two sections down.

On an adjustable HECM, the piece of the rate the lender controls is the margin: a fixed spread added to the published index for the entire life of the loan. It is set at closing, never changes afterward, and — this is the underappreciated part — varies between lenders and is effectively negotiable. Two lenders quoting the same index on the same day can carry different margins, and because the margin compounds against your balance for decades, shopping it matters more than shopping any closing fee. A margin difference of 0.5 percentage points on a $200,000 balance (6.05% versus 6.55% all-in, compounded monthly) adds $1,059 in the first year alone, compounding thereafter.

The index side is contained by caps. Under the HECM rules (24 CFR 206.21, in 24 CFR part 206), annually adjusting HECMs may move at most 2 percentage points per adjustment and 5 points total above the initial rate over the life of the loan. Monthly adjusting HECMs carry no per-adjustment cap, only a lifetime cap of no more than 10 percentage points from the initial rate (24 CFR 206.21(b)(2)(iii)); your loan note states the exact figure. The caps limit catastrophe but leave real range: a loan that starts at 6.5% could legally reach 11.5% if it adjusts annually, or 16.5% if it adjusts monthly. Borrowers who closed at high margins in the past sometimes revisit the decision later; our reverse mortgage refinance calculator works through when replacing an existing HECM's rate structure clears the cost of a new set of closing costs.

What your balance actually grows at each month is not the advertised note rate alone. It is the sum of three parts — the index, the lender's margin, and the FHA's ongoing 0.5% annual mortgage insurance premium, which accrues on the balance exactly as interest does. The table below decomposes a realistic adjustable-rate example:

Adjustable HECMs today are indexed to Constant Maturity Treasury (CMT) rates, the benchmark HUD moved the program to after LIBOR was retired. One further wrinkle: lenders also quote an expected rate (the 10-year CMT plus margin), which is used only to determine how much you can borrow via HUD's Principal Limit Factor tables — it is not the rate your balance accrues at. When comparing offers, ask for both numbers, and make sure any projection you rely on includes all three components, because omitting the MIP understates twenty-year growth substantially. The calculator on this page adds the 0.5% MIP for you, so enter the rate without it: for the example above, enter 6.05% (index plus margin) and it compounds at 6.55%. It uses the one rate you enter both to look up HUD's principal limit factor and to grow the balance, so if your expected rate and your note rate differ, run it once at each and read the borrowing figures from the first run and the balance figures from the second.

The compounding that works against your balance has a mirror image that works for you, and it exists in no other consumer loan product. On an adjustable HECM, the unused portion of a line of credit grows — the available amount increases every month at the same compounded rate the loan balance accrues at: the note rate plus the 0.5% MIP (24 CFR 206.3, in 24 CFR part 206). A borrower who opens a $120,000 line and touches none of it will find the available line larger every year, regardless of what the home's value does. At the table's 6.55% held constant for a decade, an untouched $120,000 line grows to $230,606, an increase of 92.2%. The calculator on this page shows this in its unused line of credit column.

This growth is not interest income and not cash — it is expanding borrowing capacity, insured by FHA even if it eventually exceeds the home's value. But it reframes the fixed-versus-adjustable decision: the adjustable loan's floating rate buys you an option that appreciates at that same floating rate. Financial planners have built entire "standby line of credit" strategies on this feature — opening a HECM line early at 62 and letting it compound untouched as longevity insurance. The mechanics, growth math, and caveats get a full treatment on our reverse mortgage line of credit calculator page.

Percentages hide the scale; dollars reveal it. Take a borrower who draws $150,000 at closing and lets it ride at the 6.55% effective accrual rate from the table above, compounded monthly with no voluntary payments. The balance becomes $288,257 after 10 years ($138,257 of accrued interest and MIP), $399,600 after 15 years ($249,600 accrued), and $553,949 after 20 years ($403,949 accrued). By year 20, the accrued charges are nearly 2.7 times the original draw — not because the rate was extreme, but because two decades of monthly compounding did exactly what compounding does.

Two facts keep that trajectory from being as alarming as it first reads. First, the loan is non-recourse: FHA insurance guarantees that neither you nor your heirs ever owe more than the home's value at sale, so the downside of the curve is capped even if the balance outruns the house. Second, home appreciation runs concurrently — a $450,000 home appreciating modestly may still hold meaningful equity above a $553,949 cap-limited payoff, or may not, which is exactly the uncertainty worth modeling rather than guessing. Run your own home value, age, rate, cash drawn and horizon through the reverse mortgage interest calculator on this page (it adds financed closing costs to the starting balance and caps the cash you can draw at closing at HUD's first-year limit, so its balances will not match this bare $150,000 example exactly), and see the HECM reverse mortgage calculator for how the program's insurance premiums fold into these projections.

Usually not year to year — and this catches people who assume mortgage interest is mortgage interest. The IRS allows home mortgage interest deductions for interest actually paid during the tax year, and a reverse mortgage borrower typically pays nothing: the interest accrues onto the balance instead. Accrued-but-unpaid interest is not deductible. The deduction question therefore usually arrives all at once at the end — when the home is sold or the loan is otherwise paid off and years of accumulated interest are paid in a single transaction. Even then, deductibility is limited by rules on home equity indebtedness: under current law, interest is generally deductible only to the extent the loan proceeds were used to buy, build, or substantially improve the home securing the loan, which covers a HECM for Purchase far better than a HECM spent on living expenses.

Voluntary partial payments during the life of the loan can potentially generate a current-year deduction for the interest portion paid, subject to the same use-of-proceeds rules, and servicers issue Form 1098 in years payments occur. The authoritative source is IRS Publication 936, Home Mortgage Interest Deduction — and because timing, estate context, and use-of-proceeds tracing make this one of the genuinely tricky corners of reverse mortgage planning, this is a question to put to a CPA or enrolled agent with your actual loan documents, not to a web page. Nothing here is tax advice.

The component figures used above — a 4.30% one-year CMT index, a 1.75% lender margin, and the FHA's 0.5% annual MIP — are realistic illustrations, not live quotes; CMT indexes reprice constantly and margins vary by lender and week. The structural facts are program rules rather than estimates: the 0.5% ongoing MIP and the 2% upfront MIP (HUD Mortgagee Letter 2017-12), CMT indexing, rate caps, the lump-sum restriction on fixed-rate loans, and the non-recourse guarantee all come from HUD's governing documents for the FHA-insured HECM program, summarized at HUD's HECM program page, with consumer-facing explanations at the Consumer Financial Protection Bureau. The 10/15/20-year projections compound monthly at a constant rate — a simplification, since an adjustable loan's index will wander over twenty years within its caps. Use the calculator above to stress-test both ends of the cap range on your own numbers (it holds the rate constant, so run it once at your starting rate and once at the capped rate), and treat everything on this page as education rather than lending, investment, or tax advice; for the broader family of payoff and amortization tools this site maintains, start from the mortgage amortization calculator homepage.