Downtown Jersey City Waterfront during a beautiful sunset

There are no required payments on a reverse mortgage—this type of mortgage accretes, unlike a typical amortizing mortgage that amortizes. Hence, mathematically, instead of an amortization schedule associated with an amortizing mortgage, you end up with a reverse amortization schedule and a mortgage where the outstanding balance accretes or grows. The homeowner is still responsible for paying the property taxes and insurance.

Hence, if you swap out an amortizing mortgage for a reverse mortgage, you will eliminate your monthly mortgage payment (from a monthly cash flow perspective only) but not your real estate taxes or homeowners insurance. You will still owe the accrued interest despite not having to make monthly mortgage payments. Instead, the monthly interest is deferred, meaning it is not paid immediately, and added to the mortgage's outstanding balance. This can lead to a significant increase in the total amount owed over time. This elimination and deferment of monthly mortgage payments is why the income requirements for obtaining a reverse mortgage are less stringent than those for an amortizing mortgage. On a reverse mortgage, the borrower will still have to show enough income or alternative assets to cover the real estate taxes and insurance.  

Continue on the following page to compare the accumulative numeric results of an amortizing mortgage versus a reverse amortizing mortgage (reverse mortgage).

Mortgage Refinancing Calculator Example:

Refinancing your mortgage? Try this simple mortgage calculator comparing cash flows: Compare (Old) Mortgage To (New) Mortgage.  You can indicate an early payoff if you plan on selling your home before the mortgage is fully amortized.  If you would like to consider present value, try: Compare (Old) Loan To (New) Loan Using Present Value.

Free calculator displaing an amortization schedule and helping homeowners understand the amount of money they will save by refinance there mortgage.