Interest

A reverse mortgage does accrue interest, however the homeowner is not making payments each month to reduce the loan balance. This results in the loan balance growing until the homeowner permanently moves out of the property or passes away.

Almost all reverse mortgage holders have an adjustable rate reverse mortgage because the rate is usually lower than the fixed rate.

Interest rate and mortgage insurance

In the past ten years the interest rate on a reverse mortgage has been between 3% to 5%. The real interest rate is one half of a percentage point above the quoted rate because the total rate includes the FHA’s ongoing insurance premium.