If you never use the line or any portion of the growth in that line, you never accrue any interest on it. You do not accrue interest owed on the line you do not use. This is important to note that the growth in the line is not interest you are earning but rather an increase in the available funds. The amortization schedule summarizes how the interest may accrue, any available credit line, and remaining home equity year-by-year throughout the loan.Īnd on the line of credit, as long as money is left unborrowed, that line of credit grows, giving the borrower more money available at the same rate as the interest being charged plus the MIP accrual rate. Unlike a traditional loan, a reverse mortgage is a negatively amortizing loan-meaning the loan balance will grow as time passes, assuming the borrowers choose to make no early payments. On the other hand, the line of credit amortization schedule is subject to change because reverse mortgage rates can change the borrower can always draw additional funds as long as they are available and can make repayments if they so choose, even though they are not required to do so for as long as they live in the home and pay their property charges in a timely manner. In most cases, term payments are significantly higher than tenure payments, because the lender does not know how long you'll be in the house, and must therefore be conservative with your loan amount.HOW INTEREST RATES AFFECT AMORTIZATION SCHEDULES Matt and Cindy have two monthly payment options - "tenure" payments for life or "term" payments for a specific time period - in their case, the ten years in which they expect to occupy the home. They're 73 and 70 and expect to live in their home 10 more years. Their Social Security income is only about $3,000 a month, and some extra income would really improve their lifestyle. Their home, which they own free and clear, is worth $400,000. Matt and Cindy are house-rich and cash-poor. Now let's look at a situation where the homeowners are house-rich and cash-poor.ĮXAMPLE WHERE THE REVERSE MORTGAGE DECISION IS BASED ON REMAINING TIME IN HOME ** If unused, HECM credit lines grow at the loan's variable interest rate. *Elimore's property may be worth $300,000, but it's subject to a $80,000 loan. ![]() Unused, the line of credit will grow over time.
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