Reading Your Amortization Schedule
A reverse mortgage amortization schedule shows how your loan balance is projected to grow over time and how it compares to your home's projected value. Understanding this document is key to making informed decisions about your reverse mortgage.
What It Shows
Unlike a traditional mortgage amortization schedule that shows your balance decreasing over time, a reverse mortgage schedule shows your balance increasing. The schedule typically includes: your projected loan balance year by year, accumulated interest and MIP charges, your projected home value based on an assumed appreciation rate, and your projected remaining equity.
Key Components
The amortization schedule tracks several important figures: the initial loan balance (funds disbursed plus financed closing costs), annual interest accrual, annual mortgage insurance premium accrual, any additional draws from your credit line, and the total cumulative loan balance at each year.
Home Value Projections
The schedule also projects your home's value over time using an assumed appreciation rate (commonly 4% per year). This projection helps illustrate the relationship between your growing loan balance and your growing home value. In most scenarios, the home value continues to exceed the loan balance for many years.
The Crossover Point
In some scenarios, particularly with low appreciation rates, the loan balance may eventually exceed the home's projected value. This is called the crossover point. Thanks to the non-recourse feature of HECM loans, you or your heirs are never responsible for the difference — FHA mortgage insurance covers it.
TALC Rate
Related to the amortization schedule is the Total Annual Loan Cost (TALC), which expresses the total cost of the reverse mortgage as an annual rate. The TALC includes interest, MIP, origination fees, closing costs, and servicing fees. It provides a useful single number for comparing reverse mortgage costs.
Using the Schedule for Planning
Review your amortization schedule with your advisor to understand how different scenarios — drawing more or fewer funds, different appreciation rates, different interest rate paths — affect your equity position over time. This is a valuable planning tool for making decisions about how much to borrow and when.
